Key factors to consider before selecting your vehicle
Choosing a novated lease vehicle is very similar to choosing a car you’d purchase outright: it should suit your household, lifestyle, and day-to-day needs. However, because a novated lease bundles your running costs and uses pre-tax salary contributions, there are a few extra factors that can help you make a more cost-effective choice.
This guide walks you through the most important things to consider when choosing a vehicle for your novated lease.
Running costs matter more on a Novated Lease
Your running costs are packaged into your monthly salary deduction, choosing a vehicle with efficient costs can help keep your monthly payments lower.
Servicing & maintenance
Consider:
- Reliability of the make and model
- The typical servicing costs
- Availability and price of replacement parts
Mainstream brands with readily available parts generally cost less to maintain than luxury or niche imports.
Fuel economy
Fuel-efficient vehicles (such as small cars, hybrids, and many EVs) help keep your ongoing costs down and reduce tailpipe emissions. For people who drive a lot, the difference can be significant over the life of the lease.
Insurance premiums
Insurance can vary in both price and product coverage between insurers. Insurers will typically use a large variety of information to calculate their premiums including, but not limited to:
- Drivers demographics
- Driving history
- The type of vehicle
- Repair costs
- Location
- Powertrain (Electric or Petrol/Diesel)
- Where the car is stored overnight
- If you have any other policies/roadside bundled together
The premium charged is then subject to change annually based on how many other customers may have claimed, any claims the policyholder themselves has had, as well as the costs to repair these claims, including inflation.
When you choose to include Comprehenive Motor Vehicle Insurance* in your Novated Lease through TFM, the premiums are fixed for the term of your lease, meaning you benefit from no change to your premiums throughout the course of your initial lease period.
The insurance cover is bundled up under the one monthly lease payment and paid for throughout the lease with nothing for you to do. You can elect to use your own insurer and seek reimbursement should you wish.
You can also check a vehicle’s safety rating on ANCAP’s website. Higher safety ratings can sometimes reduce premiums.
Fuel choice & daily driving needs
Your driving habits and location influence which fuel type works best for you.
Electric Vehicles (EVs)
If you live in a city or suburban area with a typical commute and ideally have access to home charging, an EV can be an excellent option. Benefits include:
- Low running costs
- Smooth, quiet driving
- Instant torque for city traffic
- Access to FBT exemptions when below the LCT fuel-efficient threshold
- If travelling less than 100kms a day, a normal 240V socket will provide enough energy to keep your car charged.
If you’re unsure about charging availability, you can check Chargefox’s network map to see nearby charging stations.
Petrol, diesel or hybrid
For drivers who:
- Live in regional or rural areas
- Travel long distances regularly
- Tow trailers, boats or caravans
…a petrol or diesel vehicle may be more practical. If you want lower running costs without going fully electric, a hybrid drivetrain can be a strong middle ground.
FBT (Fringe Benefits Tax) exposure
FBT applies to most novated lease vehicles. The taxable value of the car will influence how much of your salary needs to be allocated to cover this.
End of lease considerations
At the end of your novated lease, you’ll need to pay a residual (balloon) amount, as set by the ATO.
A useful summary of vehicle types
Electric Vehicles (EVs)
Good for:
- Low running costs
- Smooth city driving
- Access to home or workplace charging
- Tax efficiencies (FBT exemptions for eligible EVs)
Watch out for:
- More planning needed for long trips
- Some models have reduced boot space
Hatchbacks
Good for:
- Easy city parking and manoeuvring
- Low running costs
- Short commutes and urban driving
- Smaller families or couples
Watch out for:
- Limited boot space
- Can feel cramped for taller passengers
Sedans
Good for:
- Comfortable, efficient daily driving
- Good boot space
- Long-distance comfort and cabin quietness
Watch out for:
- Lower seating height
- Narrow boot opening for bulky items
Station wagons
Good for:
- Large, usable cargo space
- Long-distance travel
- SUV practicality with car-like handling
Watch out for:
- Fewer models available in Australia
- Lower ride height compared to SUVs
SUVs (Small, Medium, Large)
Good for:
- Growing families and flexible space needs
- Higher seating for visibility and easy child-seat access
- Prams, sports gear, school runs and road trips
- Optional AWD for adventures
Watch out for:
- Higher fuel consumption unless hybrid/EV
- Can be harder to park
- Higher ongoing costs (tyres, servicing)
4WDs
Good for:
- Off-road travel, towing and camping
- Rural living and unsealed roads
Watch out for:
- Higher fuel and maintenance costs
- Large dimensions in urban settings
Sports cars
Good for:
- Fun, exciting weekend driving
- Couples or families with older kids
Watch out for:
- Limited practicality
- High insurance and maintenance
- Often high depreciation
Luxury vehicles
Good for:
- Premium comfort, technology and quietness
- Long trips and refined driving
- Premium brand experience
Watch out for:
- Higher purchase price and servicing
- Expensive repairs outside warranty
- Luxury Car Tax (LCT), which increases lease costs
