Novated Lease vs Car Loan: Which Saves More?
When you need a new car, the choice usually comes down to two options: a novated lease through your employer or a standard car loan. The right answer depends on your salary, the car you're buying, and whether you're going electric.
How Each Works
A car loan is straightforward: you borrow money, buy the car, and make monthly repayments from your after-tax salary. The interest rate is typically 6-9% for a secured car loan. At the end, you own the car outright.
A novated lease is an arrangement between you, your employer, and a finance company. Lease payments and running costs are deducted from your pre-tax salary, reducing your taxable income. You save GST on everything and pay less income tax. At the end of the lease, you pay a residual value to own the car.
The Tax Advantage
On a $90,000 salary (30% marginal rate), a novated lease on a $45,000 car saves you roughly 30 cents in tax for every dollar paid through the lease. Plus you save 10% GST on the car purchase and all running costs. That's significant — potentially $3,000-$5,000 per year in tax and GST savings combined.
However, if you're leasing a petrol or diesel car, Fringe Benefits Tax (FBT) applies at 20% of the car's value. This eats into much of the tax saving. For a $45,000 petrol car, FBT costs roughly $4,200/year — often wiping out the income tax benefit entirely.
Electric Cars Change Everything
Electric vehicles and plug-in hybrids under $91,387 are completely FBT-exempt. This means the full tax and GST saving flows through to you without the FBT clawback. A novated lease on an EV is almost always cheaper than both a novated lease on a petrol car AND a car loan for the same vehicle.
When a Car Loan Wins
If your salary is under $60,000 (low marginal rate), the tax saving from a novated lease is modest. If you already own a reliable car, starting a lease creates a new financial commitment. If you want to own the car immediately with no residual payment at the end, a loan is simpler. And if your employer doesn't offer novated leasing, it's not an option.
Compare Novated Lease vs Buying →Run your exact numbers through the calculator. The difference between a novated lease on an EV and a car loan on a petrol car can be hundreds of dollars per month — in either direction depending on your salary.