Novated lease vs car loan: which is better?
A novated lease pays from pre-tax salary; a car loan from your own cash. The trade-offs, fees and when each wins.
Last updated 3 November 2026
Both a novated lease and a car loan get you into a car you pay off over time. The big difference is where the money comes from — your pre-tax salary, or your own cash — and that changes the tax, the fees and who owns the car. Here’s how to compare them.
Car loan: simple ownership
A car loan is straightforward finance. You borrow, you repay from your after-tax income, and you own the car from day one (with the lender holding it as security until you’ve repaid). You cover running costs — fuel, servicing, rego, insurance — separately, out of your own pocket.
Novated lease: salary-based, pre-tax
A novated lease is a three-way arrangement between you, your employer and a leasing company. Your employer deducts the lease payments from your salary, with part paid from pre-tax income — lowering your taxable salary. Running costs are usually bundled in and also partly pre-tax. At the end you pay a residual (a balloon-style lump sum) to own the car, or you re-lease or return it.
The trade-offs
In the novated lease’s favour
- Part of the cost is paid from pre-tax salary, cutting your taxable income.
- Running costs are bundled and budgeted in one payment.
- GST savings on the purchase price and running costs in many cases.
Against it
- FBT applies to most (non-EV) cars, which eats into the tax saving.
- Packaging and management fees.
- You don’t own the car until you pay the residual.
- It’s tied to your employer — changing jobs can complicate the lease.
Why EVs changed the maths
The FBT cost is what usually blunts a novated lease’s advantage. But eligible battery electric vehicles (first used on or after 1 July 2022 and priced under the fuel-efficient luxury car tax threshold) can be exempt from FBT. Remove that cost and an EV novated lease becomes far more compelling than the same deal on a petrol car — which is why EV novated leases have boomed. The rules, thresholds and eligibility dates change over time, so confirm the current position with the ATO or a tax adviser before committing.
Which should you choose?
- Car loan if you want simple ownership, flexibility to change jobs, or you’re buying a cheaper used car where the tax benefits are small.
- Novated lease if you’re a salaried employee on a higher tax rate, want running costs bundled, and especially if you’re buying an eligible EV.
To compare the straight finance side — repayments, a residual/balloon and total cost — use our car loan & balloon calculator, and check how pre-tax salary packaging changes your take-home with the salary calculator.
This is general information, not financial or tax advice. Novated lease outcomes depend on your personal tax position — get advice for your situation.
Work out your own numbers
Frequently asked questions
What's the difference between a novated lease and a car loan?
A car loan is finance you repay from your own after-tax money, and you own the car. A novated lease is an arrangement between you, your employer and a leasing company, where payments come out of your salary — partly before tax — and you don't own the car until you pay the residual at the end.
Is a novated lease cheaper than a car loan?
It can be, because part of the cost is paid from pre-tax salary, reducing your taxable income, and running costs like fuel and servicing can be bundled in. But novated leases carry fees, a fringe benefits tax (FBT) liability on most cars, and a residual at the end. Whether it's cheaper depends on your tax rate, the car and the deal.
Why are electric cars popular for novated leases?
Eligible battery electric vehicles first used on or after 1 July 2022 and priced under the fuel-efficient luxury car tax threshold can be exempt from FBT. Removing the FBT cost makes an EV novated lease much more attractive than for a petrol car. Rules and thresholds change, so confirm eligibility and dates with the ATO or a tax adviser.
Do I own the car with a novated lease?
Not during the lease. You only own it if you pay the residual (a balloon-style lump sum) at the end of the term. You can also re-lease or hand the car back. With a car loan, you own the car from the start, with the lender holding security until it's repaid.