Notivated Vehicle Lease - Major Pitfall

Submitted: Sunday, Jan 11, 2009 at 07:20
ThreadID: 65007 Views:3333 Replies:2 FollowUps:7
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Having had my Lease for 2 years I would like to post a problem with these leases for you to consider.
With these leases all car running costs come out of your wages and are then posted to your lease account. You then claim your vehicle running costs back from this account when it has a credit balance. In a lot of cases like when you buy tyres or do a service you have to pay for them before claiming them back out of your lease account. So in other words you have to cover the double cost of these items for a period.
This is a big problem if your lease company is less then efficent in maintaining your credits and claims from your account. Currently my lease supplier is 3 weeks & 2 pays behind in crediting funds to my account and thus I am unable to claim a service and some tyres, which can take up to a week once you put a claim in.
So if you take on a lease be aware of this and ensure the company you use are efficient, you may find yourself inless than ideal financial situations. Cheers Tony
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Reply By: BarraKing - Sunday, Jan 11, 2009 at 09:38

Sunday, Jan 11, 2009 at 09:38
Hi Tony,

I too have a novated lease but also have a Motorcharge card which i use to pay for all fuel, servicing, tyres etc. Motorcharge send the bill directly to the company that maintain the lease (Pay-Plan) and they then pay motorcharge. I just find the places that take motorcharge and get them to do what is required (Which is not hard, alot of places take the card). Have had a few things done which i have to pay myself and have had no problems with prompt payment back into my account, the only times you will have any trouble is when there is not enough money in your expense account to cover the costs, but once there is payment is made straight away.

Cheers

Josh
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Follow Up By: Member - Tony B (Malanda FNQ) - Sunday, Jan 11, 2009 at 18:59

Sunday, Jan 11, 2009 at 18:59
Josh. That is where my lease company falls down as you say, "the only times you will have any trouble is when there is not enough money in your expense account to cover the costs". That happens because they are so slow crediting monies recieved. Regards Tony
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Reply By: DCTriton - Sunday, Jan 11, 2009 at 18:43

Sunday, Jan 11, 2009 at 18:43
I also have a novated lease but a fully maintained lease - the goods/services are charged directly to the lease company, I NEVER have to dip into my pocket... My current lease (2nd) is only 9 months in - I need tyres soon and there are insufficient funds in my account to cover them - the lease company still covers the cost and makes deductions as my pre-tax benefit goes in to the account...
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Follow Up By: Member - Tony B (Malanda FNQ) - Sunday, Jan 11, 2009 at 18:53

Sunday, Jan 11, 2009 at 18:53
Josh & DCTriton - Thats the advice to give to someone looking to lease then, either one of your options. It was not an option we had unfortunatly. We had no choice of the company to use. Cheers Tony
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Follow Up By: DCTriton - Sunday, Jan 11, 2009 at 19:09

Sunday, Jan 11, 2009 at 19:09
Tony

the company I work for uses Leaseplan - we were told they were the only option but one other at work ended up going through Westpac as Leaseplan weren't prepared to meet his vehicle requirements - after some research he discovered 'no other alternative' basically equated to 'the easiest option' for the company... He took the leaseplan contract to Westpac and they met the same criteria/conditions for him...
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Follow Up By: Flywest - Monday, Jan 12, 2009 at 12:22

Monday, Jan 12, 2009 at 12:22
Another thing to consider with novated leases....the residual value of the vehicles after 2 years is up may be over optimistic in the current fiscal climate.

2 years ago companys had a pretty god idea what a vehicle would be worth after 2 years and x kilometers.

Now that the fiscal climate has changed a LOT of those projections were a little over optimistic.

Came across this in recent weeks when researching the 2nd sons used car purchase.

Found quite a few "ex novated lease vehicles" for "private sale" at $5K - $10K above the price dealers are selling same age / kilometer vehicles for. Many had the words "asking the balance of novated lease value" (eg, $35K) when son was able to buy similar used vehicles, in some cases with less km's, from a dealer at $26K.

Quite simply the market has dropped a LOT and some of the remaining novated lease costs estimates were OK 2 years ago but now are very "optimistic" in the current market.

Those who find themselves with shortfalls between whats still owing and what the market will bear for their second hand vehicle must stand the shortfall - which eats away at any equity you have built up in the vehicle if the residual is waaay too optimistic.

This could be a trap for those entering such leases now in say 2 years time even.

Just a heads up.

Cheers.
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Follow Up By: Member - Matt M (ACT) - Monday, Jan 12, 2009 at 14:50

Monday, Jan 12, 2009 at 14:50
Flywest,

I don't know that I would describe it as a 'trap'. With most finance companies the residual value is subject to negotiation. Lower residual value=higher lease costs, higher residual value=lower lease costs. That is a decision you make at the time of negotiating the lease.

The drop in second hand prices would affect you in the same way if you bought a car outright and wanted to trade it in after two years. You are still going to get less than you expected when you first bought it.

I wonder how many of the vehicles you saw on the market were ones that people were forced to sell before the end of their lease? Now that can hurt as the finance companies will get their money either way and the payout figure for early break of the lease is defnitely not a linear decrease from day one.

Matt.
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Follow Up By: bgreeni - Monday, Jan 12, 2009 at 18:51

Monday, Jan 12, 2009 at 18:51
I have same problem. 3 year lease due to expire in March - auction house wants car plus $7000 to pay out residual. Luck my account is nearly that much in credit.
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Follow Up By: DCTriton - Monday, Jan 12, 2009 at 19:55

Monday, Jan 12, 2009 at 19:55
Matt -

With Leaseplan you can opt out (with valid reason, financial hardship, loss of job etc) for a one off $450 fee - pay them, hand them the keys and walk away... It's an insurance policy to guarantee the lease company get's their dough... To my knowledge most lease providers offer this and it should be disclosed when negotiating the lease...
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