Car Loan vs Novated Lease: What’s the Difference and Which One is Right for You?

You’re ready for a new set of wheels - but now you’re faced with the ultimate financial fork in the road: Car loan or novated lease?

Both options get you into a car, sure. But the way they affect your take-home pay, tax bill, and even lifestyle flexibility? That’s where the differences start to add up fast.

Let’s break it down.

What is a car loan?

A car loan is straightforward: You borrow money from a bank or finance company, then repay it (plus interest) over time. Once you’ve paid it off, the car is yours.

Simple? Yes. But not always cost-effective.

Key features:

• You own the car from day one

• Repayments come from after-tax income

• You cover all costs: rego, insurance, servicing, etc.

• You may get a balloon payment at the end
  
  

In short: it’s all on you.

What is a novated lease?

A novated lease is a three-way agreement between you, your employer, and a leasing company. You choose the car, and your employer helps pay for it by salary packaging the lease and running costs using pre-tax income.

Key features:

• You choose the car (new or used, even electric)

• Lease payments come from pre-tax salary

• Running costs (fuel, servicing, insurance, rego) are bundled

• Potential for thousands in annual tax savings

You don’t own the car outright during the lease—but you’re also not dealing with surprise bills or budgeting nightmares.

Cost comparison: Pre-tax vs after-tax

Here’s where novated leases often win.

With a car loan, you make repayments after you’ve already paid income tax. With a novated lease, payments come out before tax, reducing your taxable income and often leading to more money in your pocket.

Take a peek at the difference with our novated lease calculator - it’s quick, free, and shows you a real estimate of what you could save.

Ownership vs flexibility

• Car loan: You own the car. Great if you plan to keep it for years and are happy to handle all the running costs yourself.

• Novated lease: You lease the car. At the end, you can buy it out, lease another, or walk away. It’s like having options without commitment.

In a world where tech evolves fast and EVs are on the rise, many Aussies are leaning towards the flexibility of leasing.

Tax time implications

You can’t claim car loan repayments on your tax return unless you use the vehicle for work and keep detailed logbooks.

But with a novated lease? You get instant tax benefits, especially if your car is for personal use. And if it’s an EV under the LCT threshold, it could even be completely FBT-free.

Running costs and budgeting

• Car loan: You need to budget separately for fuel, insurance, rego, servicing—it adds up fast.

• Novated lease: All those costs? Included in one easy package. Set-and-forget simplicity.

When a car loan might make more sense

Let’s be fair: A car loan might be better if:

• You’re self-employed and prefer to claim depreciation

• Your employer doesn’t offer novated leasing

• You want to modify the car beyond lease restrictions

• You plan to keep the car for 10+ years

In those cases, outright ownership may work better for your goals.

When a novated lease is the better choice

For everyday Aussies (especially PAYG employees) novated leasing shines when:

• You want to save on tax

• You value predictable budgeting

• You want to drive a newer, safer, or more fuel-efficient car

• You want the flexibility to upgrade every few years

And let’s be honest: it feels good to let someone else take care of the rego and servicing.

TL;DR? Here’s the quick comparison

Want to see what a novated lease could look like for you?

In the car loan vs novated lease showdown, there’s no one-size-fits-all winner. But if you're a PAYG employee looking to drive smarter, it’s worth seeing how salary packaging stacks up.

Your future car (and future bank account) will thank you.