You may have heard of the novated lease, but did you know that contrary to popular belief it’s not a financial product limited to business owners and people who drive company cars? That’s right; the common misconception is that the novated lease is another one of those business perks that helps company car drivers save a bit of money on tax. However, the fact is that anyone who has a job and a willing employer can take advantage of this great way to get your hands on a new car.

But what is a novated lease?

A novated lease is a financial product where you, your employer, and a financer enter into an agreement. This agreement involves your employer leasing a car on your behalf and agreeing to take all the necessary payments straight out of your salary.

Once your employer is on board all you need to do is take a look at a novated car lease calculator, work out how much you can afford to spend, and start shopping for cars.

Now, we did make that sound rather simplistic and with good reason. You see, the thing about this type of product is that it places all of the responsibility for making car payments and covering the running costs of the car firmly on the shoulders of your employer. So for people who aren’t very good at budgeting their monthly income, this is an ideal scenario.

So what about those tax perks

Everyone loves to save money on tax, right? So if we were to tell you that the novated lease allows you to pay your monthly payments with pre-tax dollars (that means that portion of your salary is untaxed by the way), you’d be pretty impressed. But that’s only half the story.

You also save on GST. Thankfully the tax office doesn’t like charging the same tax twice and so as the financer has already paid GST when purchasing the car, you don’t have to. The financer can even claim back that GST and this, in turn, reduces the overall price of the car. So not only do you avoid paying too much GST, but you also get lower monthly payments.

Of course, it’s impossible that you would never have to pay GST, so there is a slight catch. Every one of these leases must have a minimum residual payment according to the length of the agreement, and you must pay GST on this payment. We say this is a slight catch because regardless of this requirement you can still make significant savings over the course of the lease.

In fact, take a look at this novated lease calculator which not only gives you a rough idea of your weekly payments but also tells you what kind of money you could save each year.

Should you consider this option for buying a new car? Well, you should always keep your options open especially when it comes to matters of finance, and those tax savings do indeed make this a pretty sweet looking option. Of course, you will need to convince your employer to consider salary packaging, but these days, most companies are quite willing to help out their employees in this way.

So if you’re in the market for a new car, ask your employer about a novated lease, and you never know, with those savings you may even be able to afford a higher spec car.

As Australia's largest car finance broker, Stratton Finance know a thing or two about loans and finance. With over two decades of experience in the field they are one of the most trusted authorities in the industry.