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Novated lease
vs home loan

Hyundai Santa Fe comparison

Novated lease vs home loan

Save $9,814 on a Hyundai Santa Fe

Many people wrongly believe that the cheapest way to pay for a car is to redraw from their home loan. Although it may appear attractive in the short term, here we’ll detail exactly how, and why it’s not as cost effective as salary packaging with a novated lease. In order to make the comparison, we’ll assume the following details.

Salary & vehicle details
Salary $120,000 + super
Car allowance $0
Vehicle 2016 Hyundai Sante Fe Highlander
On road cost $59,490
Annual kilometres 20,000kms p/a
Usage 3 year lease
Annual running costs Home loan Novated lease

Finance payments

$3,832

$14,263

Fuel

$3,247

$3,247

Servicing

$1,056

$880*

Tyres

$528

$440*

Registration & CTP

$1,032

$1,032

Insurance

$1,400

$1,400

Total gross cost

$11,096

$19,942

*Lower costs due to Autopia fleet discounts

The gross cost of running the Hyundai for a year with the home loan redraw is $11,096. The gross cost with a novated lease, is $19,942, which is why many believe the home loan to be the cheaper option. That’s not the whole story however.

While you’re only going to hang onto the car for three years, the money that’s been borrowed from the home loan is paid back over the length of a much longer term. This means by the end of the three years you’ve been paying back mainly interest –  hardly any principal on the vehicle. And when you sell the car (for a lot less than you bought it for) and put the money back into your mortgage, there’s a substantial shortfall there.

With a novated lease you’re paying off a lot more of the principal (and you’re also financing the cost of the vehicle minus GST) so when it comes time to sell the car you actually make money, as opposed to losing it. The other consideration here is the opportunity cost. In other words, what else could you be doing with the money, if you didn’t use it to pay for the car. These costs add to the picture, and are summarised below.

3 year cost summary Home loan Novated lease

Up front cost

$0

$0

Post-tax running costs

$33,287

$51,967

Opportunity cost

$2,546

$2,743

Disposal cost

$19,207

-$9,493

Total-Lifetime-Cost™

$55,040

$45,226

Savings

$9,814

As you can see, when you look at the big picture as opposed to just the month to month costs, salary packaging the Santa Fe in this instance saves you $3,271.33 a year. Over the term of the lease, that’s a massive saving of $9,814.

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