Novated Lease vs Car Loan: Which Saves You More in 2026?
Novated lease vs car loan is the choice most salaried buyers face, and many never run the numbers. Here is our verdict up front: a novated lease saves you more when you buy an electric vehicle through your employer, while a car loan is the stronger choice for most petrol and non-EV buyers who want ownership and control. Money.com.au’s analysis of 12,000 car loan requests found that only 13% of buyers used a novated lease, so most people are not testing the option against their own pay. This guide shows you how each option works, where the savings come from, and how to choose before you sign.
Table of Contents
- Quick Takeaways
- How a Novated Lease Works
- How a Car Loan Works
- Running Costs and Tax: Where Novated Leases Win
- Where Car Loans Win
- Real Cost Comparison
- Side-by-Side Comparison
- Which Option Saves You More
- Mistakes That Cost Buyers Money
- Frequently Asked Questions
- References
Quick Takeaways
| Key Insight | Explanation |
|---|---|
| EV buyers on a salary package | Money.com.au’s analysis shows a 25.7% saving with a novated lease compared with a car loan for an electric vehicle. If you are an employee buying an EV, price this option first. |
| Petrol and non-EV buyers | The same analysis shows a 4.5% saving for a non-EV. That gap rarely justifies giving up control of the car, so compare total costs before you commit. |
| Eligibility decides the choice | A novated lease requires you to be an employee receiving a wage and paying tax through the PAYG system. Sole traders and contractors should start with a car loan. |
| Term lengths differ | Novated leases run 1 to 5 years. Car loans run 1 to 7 years, which can lower each repayment if you want a longer term. |
| Ownership starts at different points | Car loan buyers own the car from day one. Novated lease buyers only own it after paying the residual value at the end of the lease. |
| Compare total cost, not repayments | Compare both options over the same term, with the same vehicle price, running costs and kilometres. A lower deduction from your pay can still cost you more overall. |
How a Novated Lease Works
A novated lease is a three-way agreement between you, your employer and a novated lease provider. Your employer arranges the lease under a salary packaging arrangement, and you repay it from your pre-tax salary. According to RACV, you must be an employee receiving a wage and paying tax through the PAYG system to consider this option.
Once your employer approves the arrangement, the lease provider owns the car for the length of the lease. The package can bundle the finance with running costs such as fuel or charging, servicing, tyres, registration and car insurance, which Money.com.au lists among typical inclusions. That single payroll deduction is what makes the structure different from a loan.
Who pays GST, FBT and the running costs
RACV reports that the leasing company is generally liable to pay GST to the Australian Taxation Office on the lease, not you. For fringe benefits tax, your employer is the party generally liable, provided the lease is bona fide. Those obligations sit with the businesses in the arrangement, not with you.
The residual value you must plan for
At the end of the lease, you can buy the car by paying the residual value. Money.com.au confirms that this is how ownership transfers at the end of the term. Treat that figure as a future debt from the first day, because a buyer who has not planned for it will face a sudden lump sum decision at the worst possible moment.
How a Car Loan Works
A car loan is a direct borrowing arrangement. You borrow from a lender to buy the vehicle and repay the loan from your after-tax income on a fixed schedule. Money.com.au’s guide lists car loan terms of 1 to 7 years, which gives you more room to match repayments to your budget than a novated lease does.
You own the car from day one, and running costs sit outside the loan. Fuel, insurance, registration and servicing come from your own budget. That is where many buyers misjudge the true cost of a vehicle, because the loan repayment becomes the only number they plan around.
Secured and unsecured car loans
Secured car finance is the most common option, and the lender can reclaim the vehicle if you default on the loan. Unsecured loans exist too, but expect the rate to reflect the lender’s added risk. Read the security terms before you sign, because they decide what happens if repayments stop.
How a broker compares car loan options for you
On Road Finance connects customers with loan options from over 40 lenders and credit providers. Instead of accepting the first offer from one lender or a dealership, you can compare several offers on the same vehicle and term. Our service includes one-on-one broker support and same-day approvals, and our service areas include Silverdale, Penrith, Mulgoa, Wallacia, Luddenham, The Oaks and Sydney.
Running Costs and Tax: Where Novated Leases Win
The novated lease advantage comes from paying with pre-tax salary. When your employer deducts the lease payments before income tax is calculated, your taxable income falls. RACV confirms that this structure can reduce your taxable income and produce a tax saving, and that saving is the core of the case for a novated lease.
A private car loan offers no equivalent. You repay the loan and the running costs from income that has already been taxed. For a buyer on a higher marginal tax rate, that difference on every dollar of car spending is the largest gap between the two options.
Electric vehicles and the FBT exemption
Since 2022, the federal government’s Electric Car Discount Policy has provided a fringe benefits tax exemption for EVs financed under a novated lease, as long as the car cost sits below the luxury car tax threshold. RACV cites $91,387 as the threshold for fuel-efficient vehicles in FY2024-25. Check the current figure before you sign, because the threshold changes and a car priced above it loses the exemption.
The exemption covers new EVs bought after 1 July 2022, and RACV says secondhand EVs can qualify when they meet conditions on vehicle age, value and registration dates. RACV’s examples of EVs below the threshold include the BYD Atto 3, Tesla Model 3, Tesla Model Y, BYD Seal and Kia EV5. For a qualifying EV, you can package the finance plus the running costs out of your pre-tax salary.
Petrol and non-EV vehicles get a smaller benefit
Money.com.au’s analysis puts the saving for a non-EV at 4.5% compared with a car loan. That is a real saving, but it is a fraction of the EV figure. A petrol buyer must weigh that small gain against the lack of ownership during the lease term.
Pro tip: Ask your payroll team for the exact pre-tax deduction under each option, per pay cycle. Then add your fuel, insurance and servicing costs to the car loan repayment, so you compare two complete budgets instead of two headline numbers.
Where Car Loans Win
A car loan wins on control. You own the vehicle from the first day, you decide when to sell or trade it in, and the car is yours to modify and drive under your own terms. A novated lease gives you the use of the car, but the lease provider owns it for the lease term, and you cannot treat it as yours until you make the residual payment.
Eligibility and employment status
A novated lease needs your employer’s approval and a wage paid through PAYG. If you are self-employed, a contractor or a business owner who does not receive a wage, this option is closed to you. A car loan has no such requirement, which makes it the default route for sole traders and tradespeople financing a work vehicle.
Term length and changing jobs
Car loans run 1 to 7 years, while novated leases run 1 to 5 years. A longer term spreads repayments across more months, which suits buyers who want lower repayments and do not plan to replace the car soon. A novated lease is also tied to your employer, so a change of job means the arrangement must be unwound or moved. Plan for that before you change jobs.
Real Cost Comparison
Monthly repayment is the wrong measure for this decision. A novated lease can look cheaper each pay cycle while the total outlay tells a different story. Compare the full cost of each option over the same term, the same vehicle price and the same running costs.
Money.com.au’s cost comparison puts the saving at 25.7% for an electric vehicle and 4.5% for a non-EV, compared with a car loan. Those percentages are a starting point, not a quote for your situation. Your salary, tax bracket and vehicle price determine the final figure, so run your own numbers before you sign.
Build the total cost of ownership
Start with the vehicle price, then add every cost you will pay across the full term, including finance charges, fuel or charging, servicing, tyres, registration and insurance. On the novated side, subtract the tax saving, and add the residual payment if you plan to keep the car. The option with the lower total is your answer.
Where the numbers turn against the lease
A novated lease loses value when you exit early, because you have built little ownership and the residual payment still sits ahead of you. Keep the car for the full term and the lease gains ground. If you expect to change vehicles early, a car loan gives you more flexibility without tying you to a provider’s timetable.
Side-by-Side Comparison
The table below compares three routes buyers take when they finance a vehicle. Each has a clear winner for a specific buyer, and the trade-offs are not interchangeable.
| Option | Best for | Main trade-off |
|---|---|---|
| Novated lease on an electric vehicle | Employees on a salary who want the largest tax saving | You must pay the residual value to own the car, and eligibility rests on your employer’s arrangement |
| Novated lease on a petrol or non-EV | Employees who want running costs bundled into one payroll deduction | The tax saving is smaller, and the lease provider owns the car during the term |
| Car loan | Buyers who want ownership from day one, flexible terms and any employment status | No tax saving on running costs, which you pay from after-tax income |
Use this table as a shortlist, not a final answer. Cross-check each row against your payslip, your employer’s policy and the vehicle you plan to buy.
Which Option Saves You More
For an employee buying an electric vehicle, a novated lease saves you more. Money.com.au’s analysis shows a 25.7% saving compared with a car loan, and the FBT exemption for eligible EVs adds to that advantage. If your employer supports salary packaging and the vehicle sits below the luxury car tax threshold, this is the option to price first.
The verdict for electric vehicle buyers
Make the novated lease your default for an EV, provided the payroll arrangement works for you. The tax saving and the FBT exemption give the lease a clear lead. Your only real task is to plan for the residual payment from the start.
The verdict for petrol and non-EV buyers
Choose a car loan. The 4.5% saving on a non-EV does not justify giving up ownership from day one, flexible terms and the freedom to change your situation without an employer-linked arrangement. Take the loan, compare several offers and keep full control of your car.
A saving on paper is worth little if you cannot keep the car on your terms or change the arrangement when your job changes.
Pro tip: Before you visit a dealership, confirm with your employer whether salary packaging is available to you. Walking into a showroom without that answer lets the salesperson set the terms.
Mistakes That Cost Buyers Money
Most costly mistakes come from comparing the wrong numbers. Buyers set a lease deduction against a loan repayment, ignore the residual payment, and forget that running costs sit outside a car loan. Each error hides a real cost, and each one is avoidable with a side-by-side calculation.
Comparing weekly deductions only
A lower deduction from your pay feels like a saving, but it can hide a higher total cost over the term. Ask for the full cost of the lease and the full cost of the loan, then compare those totals. Use the same vehicle, the same term and the same kilometres, or the comparison means nothing.
Ignoring the residual payment
Many novated lease buyers focus on the monthly package and forget the residual payment due at the end. If you want to keep the car, that lump sum must come from savings or a new loan. Plan for it now, because an unplanned payment is the fastest way to turn a good deal into a poor one.
Skipping the broker comparison
Accepting the first car loan offer costs you the chance to compare rates across lenders. On Road Finance works with over 40 lenders and credit providers, so one conversation can show you several options for the same vehicle. If you would rather sit down with a broker, ask about mobile broker visits in areas such as Penrith, Mulgoa and Wallacia.
Frequently Asked Questions
Is a novated lease cheaper than a car loan?
For an electric vehicle bought by an employee on a salary, a novated lease is cheaper. Money.com.au’s analysis shows a 25.7% saving compared with a car loan. For a non-EV, the same analysis shows 4.5%, so verify that figure against your own tax position before you choose.
Can I get a novated lease if I am self-employed?
No. RACV states that you need to be an employee receiving a wage and paying tax through the PAYG system. If you are self-employed, a car loan is the route to compare.
Do I own the car during a novated lease?
No. The lease provider owns the car during the lease. You can buy the car at the end by paying the residual value, so set that amount aside before you sign.
How long can each option run?
A novated lease runs for 1 to 5 years, and a car loan runs for 1 to 7 years, according to Money.com.au. Choose the term that matches how long you intend to keep the vehicle, not the one with the lowest repayment.
Does a car loan include running costs?
No. Car loan repayments cover the vehicle itself, while fuel, insurance, registration and servicing are separate costs. Budget for them in full, or the loan repayment will look affordable while the real cost of ownership does not.
Can On Road Finance help me compare car loans?
Yes. On Road Finance connects customers with car loan options from over 40 lenders and credit providers, and our service includes one-on-one broker support and same-day approvals. We also offer vehicle insurance brokerage, insurance and warranty options, and finance for cars, utes, vans and motorcycles.
Tell us what you found when you compared a novated lease with a car loan, and which option you chose.
To find out more or to discuss your options with a professional broker, please contact On Road Finance on 1300 518 580 or visit https://onroadfinance.com.au/application-form to complete an application form today!
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