• The place to find the right expertise and make better decisions
  • Find the right expertise
Fiona N.
Fiona N.
Pascoe Vale, VIC
5 Likes
0 Followers

Hi there, I was made redundant 4 months ago and had a novated lease with my previous employer. I have now been offered a 'vehicle hand back option' regarding the car from the Lease Protection insurance company. They will cover up to 25k (less car payments and petrol costs already paid) if I hand back the car to the financier. The current payout figure is 39k on a 2016 Jeep Grand Cherokee. Is there anything I need to consider before I decide?

last year

Responses

Hi Fiona,
can I start by saying that I have never been a fan of novated leases. If you take into account the fact that you are required to make a contribution to your employer as part of the whole FBT nightmare that comes with providing vehicles to employees, you will not be any better off. The literature from the leasing company never makes this connection, and all they want to do is bang on about tax savings......trouble is that the employee contribution ALWAYS ends up being exactly the same as the amount of tax you save.....funny that.
so now that I have had my little rant here is my two bobs worth on your situation: be VERY VERY VERY WARY of Greeks bearing gifts!!!
you need to get an EXACT figure of what you are going to be up for, and compare this with the fact that if you maintain the lease, you will eventually end up owning the car, which itself has a value......
the thing that makes me nervous is that you currently owe $39k on a vehicle worth substantially LESS than $39k, and trhey propose to pay you an indeterminate amount to hand back your vehicle.
I would want to be EXTREMELY confident that you are not going to end up with no car and a financial liability to service before I signed up to anything.
hopefully there is an equipment finance guru out there who can help you with more specific advice
good luck
bc

Comments

Thanks Brendan, sounds like that will be my last novated lease based on all the comments!

From what I read of your query:

You are being offered to sell back the vehicle to the lease company/car yard at a value to be determined.
The Lease Finance Insurance will cover up to $25k of the value difference.
Payout figure quoted is $39k.

2016 Jeep G.C. - what is the private sale/trade in value? If you can get more on a trade-in/private sale and the $39k is set, may be a better option. If the vlaue is say $20k, then handing back would make sense.

Unfortunately the Novated Lease options are generally set up to look after the finance and car company - you pay top dollar for the car, finance at a higher rate - and the novated lease/salary sacrafice company gets the kick-back. The tax saving and personal contribution are offset by the the higher payment values.

Good luck with this - hopefully there is a positive outcome.

Comments

Thank you Todd - this makes sense.

Hi Fiona,
I agree with the previous comments. Novated leases can be tricky, particularly if you leave employment prior to the end of the lease term, and take the car with you.
It is worth enquiring of the finance company as to what alternatives are available to you. Usually there is an option where you can keep the car, take over paying the lease payments for the remaining term and claim them as a tax deduction (if your circumstances allow) to the extent of your business use.
This may be preferable to incurring a loss on the payout as it appears from your comments.
Good luck with it.
Regards,
David

Comments

Thanks David, it would only be a loss if the car went dirt cheap. For a 2016 car I don't expect it to be given away. Taking over the lease payments would cost more for me than buying a cheaper car - that's how I understand it.

Hi Fiona,
Unfortunately you have already chewed up $30,000 in value, selling or handing back the car isn’t going to get a cent of that back.
Lesson learned!
Drive it until it dies (10 years plus) and avoid Novated Leases like the plague
Best of luck with it
Regards
Scott


Comments

Hi Scott, I'm not sure how you got the $30k?

last year

Thank you all for your valuable responses. I was thinking of handing it back because a) even if it was sold for $25k there'd be roughly a balance of $14k to be paid on the balance of the payout figure. The insurance company is willing to pay up to $21k (That's 25k less repayments and petrol costs already paid) - then I wouldn't be out of pocket? To keep the car would be more expensive - I'm better off buying a cheaper car. Is my thinking correct?

Comments

Hi Fiona,
I possibly didn’t understand the payout part. Are you saying that you can hand it back and the insurance will cover the capital loss after it is sold up to $21k?
If that is the way it works, then yes, I would hand it back.
Lesson learned though, novated leases are written to protect the employer and rarely provide the employee with anything other than an expensive flashy car to drive.

last year

Thank you so much Scott. That's exactly what I'm saying.. and yes, I'll be cautious of notated leases from now on.

Your Answer

If you wish to include a video or audio response, you can do this by including links to Youtube, Vimeo or SoundCloud (https://www.youtube.com/watch?v=xxxxxxxxxx OR https://vimeo.com/xxxxxxxxx)

<% error.message %>