Novated Lease vs Car Loan: How They Compare

A novated lease lets you pay for a car using pre-tax salary, reducing your taxable income. Your employer deducts the lease payment before calculating PAYG tax, so you effectively get a discount equal to your marginal tax rate. Running costs (fuel, insurance, servicing, registration) are typically bundled into the payment.

A car loan is simpler — you borrow money, buy the car, and make repayments from after-tax income. You own the car outright once the loan is repaid. Running costs are paid separately from after-tax income.

When Does a Novated Lease Win?

The tax savings from a novated lease are larger when your salary is higher (higher marginal rate = bigger pre-tax benefit). The break-even point varies, but generally a novated lease becomes attractive above $80,000-$90,000 salary for cars in the $30,000-$60,000 range. Below that, the administrative costs and residual value risk may outweigh the tax savings.