Leasing is an alternative way of financing your new electric car in Australia. For the uninitiated, leasing is when you rent an electric car for a specified period.
This period ranges from two years to five years or more. There are several different types of electric car leasing in Australia. Here’s everything you need to know.
Why Lease Electric Cars in Australia at All?
Electric cars take a huge chunk of change out of your pocket. This will be one of the most significant purchases for most people. And not many people are willing to go into debt for electric cars.
This is what makes the idea of leasing electric cars so attractive. It takes the pain out of car ownership well.
Leasing reduces the amount of money that you have to pay out of your pocket. It is an excellent way of ‘renting’ new cars for a few years.
For most people, buying new electric cars every few years is impossible. But leasing gives you access to brand-new vehicles more often.
Before leasing an electric car, it helps to know about all the options available. In general, there are three types of electric car leases in Australia.
Make sure to learn about the specificities of each type before ‘buying’ the electric car.
What is a Novated Lease
A novated lease is a financing option where your employer and seller manage the car. It is an excellent way of saving money in the long run. However, the concept can be difficult to wrap your head around.
This is because you’re being asked to pay for something you won’t truly own. Hence the term ‘lease.’
It doesn’t help that the word ‘novated’’ sounds like a confusing concept. The good news is that novated leases can provide you with some tax relief.
It allows your employer to make lease payments on your behalf from your pre-tax income. This effectively reduces your taxable income, which reduces your overall tax burden.
You now have access to more disposable income. You won’t have to pay GST on the car when you’re not buying it. This further lowers the cost of ownership by another 10%.
A novated lease may include operating costs, such as servicing and registration. It also includes a Fringe Benefits Tax (FBT) that forecasts the car’s value.
FBT estimates the distance you will drive (for personal and work-related use). This will determine the overall value of the car.
So how does a novated lease work?
You choose an EV and start lease proceedings through a supplier. Your employer may already have a supplier they prefer to work with.
The lessee (you) then signs a Deed of Novation. This deed outlines the terms and conditions of the lease.
It outlines that your employer takes on the obligation of making lease payments. This allows the employer to make lease payments on your behalf.
Your employer deducts these amounts from your salary before paying it to you. This will reduce your overall tax burden.
Once the lease expires, you have the option to pay the residual to own the car. You can also trade the EV for a new one. Another option is to refinance the residual with another lease.
Even though the employer pays on your behalf, the lease is in your name. So you have complete responsibility for the lease.
The terms do not change if you decide to change jobs. Your new employer will not take over the lease payments.
This is a major disadvantage of novated leases. If you lose your job, you’ll have to get your new employer to take over.
In some cases, you might have to terminate the lease and pay out what’s left. The additional charges could be like an albatross around your neck.
The novated lease also comes with administration fees. You are likely to pay high-interest rates on novated lease compared to car loans
Finance lease is most commonly used by businesses in Australia. A financier buys the electric car and leases it to companies for monthly installments.
Once the lease expires, the lessee has to pay the residual value of the EV. They will also have to assume its ownership or renew the lease for another period.
The advantage to businesses is that they won’t face the cost of ownership. The financier retains ownership but the lessee has exclusive use of the car.
Under a finance lease, the use of the EV is subject to the terms of the agreement. The business pays fixed monthly installments during the lease period.
The time frame for the lease is usually 12 to 60 months. But you can negotiate a longer term if needed. Some companies also offer a more extended lease option.
This often means having to pay more compared to the shorter lease option. Once the lease expires, the lessee has a few options, including:
- Refinance the EV for another term
- Pay the residual value on the EV and take ownership
- Pay the residual value of the EV and then sell it
- Sell the EV and replace it with a new vehicle (this can be another EV)
Financiers will take certain factors into account before leasing your EV. These may include:
- Proof of income
- All assets of the business
- How long has the company been in business
- The company’s credit history
- The profitability of the business
- An Australian Business Number (ABN) which is unique to each number
- The business must be registered for GST
- The electric vehicle must be used for business purposes only
Some financiers also ask applicants to provide profit and loss statements and balance payments.
The agreement will also outline the following:
- Who needs to pay to maintain the EV
- How often should the EV be serviced
- What the services include
- Who is to carry out the maintenance and repair
Given that EVs are of great value, it is essential to ensure they are insured. The insurance term outlines who is responsible for making insurance agreements.
The insurance term may also outline coverage for the car.
Personal Property Security Register
The Personal Property Security Register (PPSR) is an additional clause in a financial lease. It means that the lessee provides a security interest to the lessor.
This protects the lessor if the lessee becomes insolvent or the company is liquidated. The lessee will surrender secured assets to the lessor.
The lessor may decide to sell the property to cover the finances.
An operating lease is a type of rental agreement. It has a shorter term where you can upgrade to a new electric vehicle.
You can do this while the lease is still in effect. There is another difference between an operating lease and a finance lease.
The user will not be able to buy the electric car during the lease period. The lessee maintains exclusive access to the EV in return for making regular monthly payments.
The rental payments are not equal to the value of the EV, unlike finance leases. Moreover, the EV is expected to maintain its residual value as the lease expires.
In some cases, EV maintenance may be included in the payments. Once the lease expires, the EV can be returned or a new lease was taken out.
Frequently Asked Questions about Leasing a Car
Here are a few questions that prospective lessees have in regard to leasing EVs.
How Long Does a Lease Last?
Electric car leases usually run between two to five years. However, you can negotiate a shorter or longer contract. The lease term can be as low as 12 months to five years.
What Happens Once the Lease Ends?
This depends on the terms of the agreement outlined in your lease agreement. Business lessees often renew their leases by upgrading to a new electric vehicle.
Returning the electric car is also an option. In some cases, the resale value of the EV will differ from its residual value. The lessee may be required to cover this difference.
Explaining Residual Value and Resale Value
The financier estimates how much the EV will be worth once the lease expires. This figure is known as the “Residual Value”.
This is an excellent way for financiers to minimize their overall risk. Anything can happen to an EV during the lease term. The industry itself may change throughout the lease.
The actual value of the car may be different from the residual value. The end-of-lease value of the EV is known as the “Resale Value”.
Who Will Pay for Maintenance Services?
Lessees are usually responsible for repairs and maintenance costs. However, some financiers may cover basic essentials in their lease, including general maintenance and servicing.
The lessee will pay for damaging the car. This is why it is essential to buy insurance for the EV.
Excess Mileage Charges
Cars with higher mileage will lose their value over time. Lessees agreed to use the new car for a fixed number of km per year.
This is one way of ensuring that the EV stays close to its resale value. Staying within the agreed mileage is one way of avoiding payments that cover the difference.
Going over the amount will subject you to an excess mileage charge. Charges are calculated by multiplying extra kilometers driven by a fixed cost-per-mile.
The latter will be outlined in the lease contract. In most cases, excess kilometers are charged at $1. It may be as low as $0.50 per kilometer.
This may soon add up if the lessee drives far beyond the designated mile allowance.
Lease Will Impact Your Credit Rating
Just like regular loans, a lease will impact your credit rating. Financiers will run a credit check before judging your ability to meet the payment schedule.
You can increase your credit rating by making prompt payments. Missed and lower payments will significantly lower your credit rating.
Leasing an electric car is a good way of rebuilding your credit score. Just make sure to make each payment on time.
Committing to the agreed-upon payment schedule will demonstrate your ability to make payments on time.
Pros and Cons of Leasing an EV
Leasing is becoming a popular alternative to buying a new electric car. It is a good option for anyone who has a smaller budget to work with.
Many motorists in Australia prefer monthly lease payments instead of outright buying an electric car.
Lease payments are usually lower than taking out massive loans. Moreover, loans require more commitment from motorists. Here are the pros and cons in more detail:
- You won’t have to pay GST on purchasing the new EV or running costs
- The leasing company has a high buying power that grants them more discounts
- No need to pay deposits
- There is no obligation to buy the car after the lease expires
- Drive the car stress free
- Novated leases lower your overall tax obligation
- You can drive luxury EVs that may be out of your budget
- You do not own the car and cannot use it to secure a loan
- You are not allowed to make vehicle modifications under the lease term
- In some cases, leasing may be more expensive than buying a new EV
- There are strict mileage caps you must adhere to with severe penalties
- Terminating lease contracts can subject you to heavy fines
Before you decide to lease a new electric car, take the following tips into account:
Always work with a reputable fleet management company. They will provide you with the best possible options at an affordable price.
Do your research. Take your time to get quotes from different financers. Your employer may already have arrangements with a reputable fleet management company. In any case, your goal is to secure the lowest monthly payments.
Before signing on the dotted line, decide if you can spend the agreed amount. Electric cars in California can also be leased from various dealers.
Contact your financial advisor if you are still unsure about leasing electric cars in Australia.
Have you leased an electric car in Australia before? Please share your experiences with us!
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My name is Matthew, staying in Seattle, Washington. Electric Vehicles (Electric Cars & Electric bikes) caught my attention for the last few years and my love for electric cars and bikes is everlasting. I spend many of my weekends traveling to various places all over various cities with my electric vehicle (e-bike and electric car). Here I am sharing my expertise, experience, and invaluable information about electric cars and electric bikes. Check out more.