What interest rate will you be charged on a novated lease?
Novated leasing is very different to the other potential options for financing a car. But when it comes to novated lease interest rates, you should think about them just like any other kind of finance.
Because your interest rate will play a big part in determining how good your deal is overall.
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If you want a quick cost estimate, you can get a novated lease quote with Novated Lease Australia.
Now, with a novated lease, the interest rate is arguably not as important as there are tax savings to offset any finance costs. Any money you pay in interest on the lease is paid by your employer from your salary before tax is deducted. So it costs you less than paying the equivalent rate of interest on a standard loan.
But it's definitely not true to say that the interest rate on a novated lease doesn’t matter or that you should be prepared to pay a high interest rate. To make the most of a novated lease, you absolutely should try to get the lowest interest rate you can.
How do you do that? The same way as you would with a car loan: Ask the lease provider what your rate will be and then compare that to the rate you can get with others.
Just make sure you think about rates with the overall cost of your lease in mind. Interest is just one of the costs you should be looking to minimise. Admin/management fees and finance establishment fees are the other main ones.
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What are the interest rates on novated leases?
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The interest rate on a novated lease is set by the lender providing the lease finance. As a rule of thumb, novated lease interest rates generally start from around 7.5% p.a.
Novated lease interest rates are fixed, meaning the regular deduction from your salary during the lease will stay the same throughout. This gives you certainty over what you’ll be paying.
The only reason your regular payment should change is if you ask for a change to your running costs budget.
But while novated leases interest rates are fixed over the lease term, the actual rate that’s offered varies from one person to another based on their specific situation.
It will also depend on the lender that provides the finance. Most novated lease providers work with a pool of several lenders and will be able to get you a few diffetent finance quotes to compare.
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What affects the interest rate on a novated lease?
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The factors that affect novated lease interest rates are more or less the same as the ones that impact car loan rates. Lenders are looking to minimise risk.
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Your credit history
The lowest novated lease interest rates are given to borrowers with a good credit history. If you have defaults or other negative information in your credit report, you’ll pay a higher rate.
The age of the car
New cars usually qualify for lower rates as they are less risky for the lender. Expect to pay a slightly higher rate on a used car novated lease.
Your employment history
If you’ve been in your job and industry for a long time, this is preferable for lenders. For example if you’re still within the probation period in your role, the interest rate you’re quoted on might be higher.
Are novated lease interest rates higher than car loans?
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This is a common misconception but it’s not really how it works. In fact, the lenders providing the finance for a novated lease also offer standard car loans, usually at the exact same rate.
What you need to watch out for is novated lease providers who aren’t transparent over which lender the finance is coming from. They might only have access to a single lender or have preferential deals in place that mean they’re not incentivised to find you a low rate.
Again, always ask for who will be providing your finance and at what rate. Then compare it to what other novated lease companies can get you.
