Novated Leasing: The ‘work perk’ that could be costing you thousands
For many Australian workers, the New Year can signify new beginnings when it comes to their job situation.
Whether that be starting fresh in a new career or simply moving workplaces – both employers and employees are gearing up to impress. But one financial expert says there is one ‘work perk’ that workers need to think twice before taking up.
When looking at a new contract, many will notice the option of taking on a Novated Lease or a Salary Sacrifice arrangement.
From nurses to police, teachers, defense workers and general corporate Australia, this is used as a key attraction point for employers to entice new employees to their businesses.
A novated lease is a three-way agreement between a worker, their employer and a car provider.
It is an all-inclusive salary packaging option that lets you pay for your choice of vehicle and its running costs from your pre-tax salary. You can reduce income tax and gain access to various savings.
Although the agreement sounds beneficial in many ways, financial and consumer remediation expert Carly Woods (pictured) says this ‘work perk’ is landing thousands of Australian workers into debt they should not be taking on – with hidden fees riddled throughout.
Woods founded GetMyRefund, an organisation that specialises in consumer remediation, and says they have seen an unprecedented increase in workers using their services after being ripped off by their Novated Leasing agreement.
This doesn’t typically show up early on – but a key thing that catches many workers out is the End of Lease costs that can get up to thousands in additional charges that people are often not told about when taking on the lease. This can include balloon payments, resale value guarantees or disposal fees.
Not only that, but administration fees are usually riddled throughout the agreement that you might not find in other arrangements.
Another reason to steer clear of the perk is that the lease typically requires a decent commitment over a few years – this is why many employers choose to offer it. If you find yourself in a situation where you need to change your employment or want a different vehicle, the flexibility isn’t always there.
Depreciation is a major player when it comes to choosing the right car too and this is a key financial element to keep in mind if going into this arrangement. Cars generally depreciate over time and if the car’s market value drops significantly during the lease term, you may be left with a higher residual value than the car’s actual worth.
Reading the fine print is critical when entering a Novated Leasing agreement – some put usage restrictions when it comes to milage and how you use the vehicle and people can rack up additional charges by exceeded limits they weren’t necessarily aware of.
Lastly, interest rates associated with novated leases can be higher than other financing options simply because they can. This can impact the overall cost of the vehicle and weigh heavily on the value of the agreement.
So if you’re looking for a new job or about to enter a new workplace, it is important to take all factors into account and do your due diligence when presented with the option of a novated lease.