Novated Lease Calculator
Novated Lease Results
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The Ultimate Guide to Using a Novated Lease Calculator
Novated leasing is one of the most tax-effective ways to finance a car in Australia. But with complex calculations involving residual values, running costs, and tax implications, it can be challenging to understand the true cost.
That’s where a novated lease calculator comes in.
In this comprehensive guide, we’ll cover:
✅ What a novated lease is and how it works
✅ Why using a calculator is essential before signing a lease
✅ Key inputs needed for accurate calculations
✅ How to interpret the results
✅ Pros and cons of novated leasing
✅ Common mistakes to avoid
By the end, you’ll be able to confidently use a novated lease calculator to determine if this financing option is right for you.
What is a Novated Lease?
A novated lease is a three-way agreement between:
- You (the employee) – Who selects and uses the vehicle
- Your employer – Who deducts lease payments from your pre-tax salary
- A finance company – Who owns the vehicle during the lease term
The key benefit? Significant tax savings because your repayments come from your pre-tax income rather than after-tax dollars.
How Does It Work?
- You choose a new or used car (under a certain age).
- A finance company purchases the vehicle and leases it to you.
- Your employer agrees to make lease payments from your salary before tax is deducted.
- The lease typically runs for 1-5 years.
- At the end, you can pay the residual (balloon payment) to own the car outright, refinance, or upgrade to a new lease.
Why Use a Novated Lease Calculator?
Novated leases involve multiple financial components:
- Vehicle cost – Purchase price of the car
- Lease term – Usually 1-5 years
- Residual value – The balloon payment at the end (set by the ATO)
- Interest rate – Determined by the lender
- Running costs – Fuel, insurance, registration, maintenance
- Tax savings – Based on your marginal tax rate
A novated lease calculator helps you:
✔ Compare leasing vs. buying outright – Is it cheaper in the long run?
✔ Budget accurately – Know your exact pre-tax and post-tax costs.
✔ Optimize lease terms – Should you choose a 3-year or 5-year lease?
✔ Avoid surprises – Understand the residual value you’ll need to pay later.
Without a calculator, you might underestimate the true cost or miss out on tax savings.
Key Inputs for a Novated Lease Calculator
To get accurate results, you’ll need to enter:
1. Vehicle Price
- The total cost of the car (including GST and dealer fees).
- Some calculators let you add optional extras (e.g., tinting, extended warranty).
2. Lease Term
- Typically 1, 2, 3, 4, or 5 years.
- Shorter terms = higher monthly payments but lower residual.
- Longer terms = lower monthly payments but higher residual.
3. Interest Rate (Finance Rate)
- Usually between 4% – 10%, depending on the lender and your credit score.
- A lower rate significantly reduces total costs.
4. Annual Running Costs
- Estimated yearly expenses for:
- Fuel
- Insurance (comprehensive)
- Registration & CTP
- Maintenance & Servicing
- Tyres
- Some calculators let you input each cost separately.
5. Your Annual Salary & Tax Rate
- The higher your income, the greater the tax savings.
- Marginal tax rates in Australia (2024):
- $0 – $18,200 – 0%
- $18,201 – $45,000 – 19%
- $45,001 – $120,000 – 32.5%
- $120,001 – $180,000 – 37%
- $180,001+ – 45%
6. Residual Value (Balloon Payment)
- Set by the ATO (you can’t negotiate this).
- Depends on lease term:
| Lease Term | ATO Residual % |
|---|---|
| 1 Year | 65.35% |
| 2 Years | 56.15% |
| 3 Years | 46.85% |
| 4 Years | 37.55% |
| 5 Years | 28.25% |
- Example: For a $50,000 car on a 3-year lease, the residual is $23,425 (46.85%).
How to Interpret Calculator Results
A good novated lease calculator will show:
1. Monthly Pre-Tax Cost
- The amount deducted from your salary before tax.
- This includes both the lease payment and running costs.
2. Monthly Post-Tax Cost
- The real cost to you after tax savings.
- Usually 20-40% cheaper than financing a car traditionally.
3. Annual Tax Savings
- How much you save in income tax each year.
- Example: If your pre-tax deduction is $1,500/month and your tax rate is 32.5%, you save $487.50/month ($5,850/year).
4. Residual Value (End of Lease)
- The lump sum you’ll need to pay to own the car outright.
- You can refinance this amount or trade in the vehicle.
5. Total Lease Cost
- The sum of all payments + residual.
- Compare this to the car’s purchase price to see if leasing is worth it.
Pros & Cons of Novated Leasing
👍 Advantages
✅ Tax savings – Payments come from pre-tax salary.
✅ GST savings – You only pay GST on the financed amount, not the full price.
✅ All running costs included – No surprise expenses.
✅ Flexibility – Upgrade your car every few years.
👎 Disadvantages
❌ You don’t own the car immediately (until you pay the residual).
❌ Early termination fees if you leave your job or cancel the lease.
❌ Higher interest rates than some car loans.
❌ Residual payment risk – If the car’s market value is lower than the residual, you could lose money.
Common Mistakes to Avoid
🚫 Underestimating Running Costs
- If you input $2,000/year for fuel but actually spend $3,500, your savings will be less than expected.
🚫 Ignoring the Residual Value
- Many people forget about the balloon payment at the end.
- Always factor this into your long-term budget.
🚫 Not Comparing Lenders
- Interest rates vary between providers.
- Get quotes from at least 3 finance companies before committing.
🚫 Choosing the Wrong Lease Term
- A 5-year lease has lower monthly payments but a much higher total cost.
- A 3-year lease may be more cost-effective overall.
Final Verdict: Is a Novated Lease Worth It?
✅ Best for:
✔ High-income earners (tax savings are greater).
✔ Employees who drive a lot (fuel and maintenance are tax-deductible).
✔ People who like driving newer cars every few years.
❌ Not ideal for:
✖ Low-income earners (tax benefits are minimal).
✖ Those who prefer to own a car long-term.
✖ People with unstable employment (early termination fees apply).
Try Our Free Novated Lease Calculator
Want to see real numbers for your situation? Use our interactive calculator above:
Enter your details and see exactly how much you could save with a novated lease!
Got Questions?
Have more questions about novated leases? Drop them in the comments, and we’ll help you out! 🚗💨
