Salary Sacrifice or Loan?

Some companies in Australia now allow their employees the ability to utilise the benefits of Salary Sacrificing where they elect to pay more into Superannuation or Lease a vehicle rather than buy one. I have taken advantage of this method over the years and would like to provide some insight into the comparison of Novated Leasing a vehicle versus a personal loan.

These days the options of novated leasing are more flexible in terms of the length of the lease and to the nominated kilometers traveled. The more distance you travel each year the less Fringe Benefits Tax you pay.

So let’s start with an example. A brand new medium sized car bought for $25,000. You have determined the lease will be for five years and you will travel fifteen thousand kilometers each year. Here’s what it will look like:

You can see that your take home pay is actually more because of the tax benefit. Part of the lease amount ($5,012.12) is taken out before you are taxed lowering your taxable income. Depending on the setup there may be a residual at the end of the lease that you must pay. You pay $309 per fortnight.

Now let’s look at a personal loan:

So, comparing the two we can summarise the following:

  1. The payments remain similar over the five years depending on the interest rate.
  2. At the end of the lease you must purchase/sell/trade up the vehicle.
  3. Paying off the personal loan will mean $11,175 in interest.
  4. The personal loan option means you own the car at the end of the 5 years.
  5. Leasing the vehicle means you don’t exactly own the vehicle.
  6. Breaking the lease will cost you a large fee.
  7. Leasing will affect any future large purchases such as a house. ( I learned that one the hard way)
  8. Not completing the nominated kilometers each year will be recalculated and charged back to you.
  9. With the lease everything is paid for including petrol, tyres, services, insurance, registration.
  10. Reducing the lease length will mean you pay a residual. My Honda was $13,000 after a four year lease.


Note: I receive no commission or affiliation with Remserv