When a person signs up for a car lease, it is more than just the money they will pay. The person leasing the vehicle is also taking part in a long-term financial transaction with the dealership. Car lease payments are usually made according to the schedule outlined by the dealership. This means that a person has a certain amount of money scheduled each month, and the dealership must match that amount or lose their payment. This is called a “cash lessor payoff” and can differ from a traditional financing contract.
A cash lessor payoff is a finance company agreement used only with salary packaging arrangements. It means that the employer pays for the car lease, car operating expenses and all other car lease expenses out of the employee’s salary package during a combination of post-tax and pre-tax income deductions. If you have an adjustable monthly salary, the finance company must adjust the monthly payment amount to a level that will effectively give you a salary increase. The benefit to this is that you can save money on the interest on the loan and you are not paying the finance company interest on the money they are giving you. The disadvantage is that if the dealership does not cover the loan amount, you will be financially responsible for the loan plus the interest.
A conventional financing arrangement in novated lease gives the employer the ability to adjust the payment structure as needed based on the company’s financial resources. This means that the dealership can either reduce your monthly payment or increase it at any time without prior notice. If you need more money now, you can make that request to the dealership. On the other hand, if you anticipate some sort of financial loss in the future, the dealership can adjust the loan amount early. This can mean big bucks in additional payments to the employee.
A novated lease allows the employee to get out from under a car lease if they want to. They can move to another vehicle or sign a new lease with another dealership. Even if they want to stay with their current employer, they are not obligated to do so. If they choose to go where the opportunity presents itself, they must pay the same monthly payment for as long as they have the lease. The new arrangement of the novated lease will also be reflected in the employee’s next gross salary package.
It is best to check with your employer about any extra costs incurred by signing a new lease versus a new hire car or auto loan from their company. They often have special programs that may benefit an employee who wishes to change jobs and take their vehicle with them. The employer has all kinds of reasons why it makes sense to allow a person to use their vehicle during their employment. The costs like fuel and car maintenance are eliminated and the employee saves money in the long term. Leasing is not right for everyone. It is best to do the research and make an informed decision.