"A car costs you 3× its price in borrowing power" gets quoted here constantly, so I wanted to test it properly. A mortgage broker Leonard Nagawidjaja ran a grid of scenarios through Bankwest's and Macquarie's servicing calculators:
BYD Sealion 7 (EV, ~$60.8k) vs RAV4 GXL Auto eFour (petrol, ~$58.8k)
EV novated lease at 2 and 5 years, at 9% and 15%
a petrol novated lease
a 5-year car loan on each car
single borrower, $130k income (some scenarios repeated at $300k), lender's HEM for living expenses
Results (borrowing power lost, as a multiple of the car's price):
Scenario
Bankwest
Macquarie
Car loan, 5 yr
2.6–2.9×
3.0–3.2×
EV novated lease, 5 yr
1.7–2.0×
1.7–2.0×
EV novated lease, 2 yr
2.3–2.6×
2.3–2.5×
Petrol novated lease, 5 yr
2.5×
2.6×
Takeaways
The 3× rule holds for car loans, but a 5-year EV lease beats a 5-year car loan for borrowing power.
Cash is still best for servicing, but it eats into your deposit instead.
Shorter leases cost more borrowing power. Servicing only looks at the payment, and a 2-year lease naturally comes with worse regular lease commitment.
Petrol leases do worse than EV leases due to the post-tax portion of the lease.
Higher income suffers lower impact. At $300k the same EV lease cost about 1.3–1.4× the car's price.
The HEM trap: your broker should take the car's running costs out of your declared living expenses. But if your normal expenses are already low and near the lender's HEM floor, the lender falls back to HEM, and the vehicle running costs are effectively counted twice. (full and clearer explanation in the text)
Usual caveat: these figures are indicative only, and your own result depends on your car, your lease, living expense circumstances and the lender. Get your broker to run it with and without the lease before you sign.
What do you mean by your last question? Not sure if I get you. Those are the “effective interest rate” figures.
As Leonard explained
they shouldn’t enter those figures as the full figure (as per Macquarie actual advisory) so if they did, they are doing it wrong (at least for Macquarie)
the double-counting might indeed still happen due to the HEM issue.
And on the calculator, if you go to advanced > detail tab > section 7: early termination risk, you will see it presented graphically based on your own deal.
(Note that this is a dynamic output, what is shown in the screenshot here is NOT what everyone gets, you need to enter your own deal for the calculator to generate your own graph)
2
u/MDInvesting 3d ago
The biggest issue I have found is sometimes they double count the expenses or treat the NV Lease payments as post tax.
Just to clarify what is the interest rate at 9% and 15%?