Novated lease vs car loan: Detailed comparison

If you’re considering a novated lease, there’s a good chance a car loan is the other option you have in mind. Both are ways to pay for a car for personal use, but there are some major differences to weigh up.

With the cost of living a major pain point for Aussies in 2026, minimising your cost of driving could be a big help. In this article, we explain how a novated lease compares to a car loan, both in terms of how they work and the potential cost difference, to help you make an informed decision between the two.

What is a novated lease vs a car loan?

Put simply, a novated lease and a car loan are different ways of financing a car with the cost spread out in regular payments. But how the payments are made and the tax implications are how a novated lease and car loan differ.

With a car loan, you borrow a lump sum from a bank or other lender to purchase a car and repay the money over a fixed term. The car you buy acts as security for the loan.

With a novated lease, instead of making payments directly to a lender, you pay for your choice of new or used car and its running costs from your pre-tax salary through your employer. This means you enjoy tax savings that are not available via a car loan.

Now, let’s look at the differences in a bit more detail.

Novated lease vs car loan compared

	Novated lease	Car loan
Who’s involved	You, your employer and a novated lease provider.	You and a lender.
Vehicle ownership	With a novated lease, you don’t own the vehicle during the lease term. But you have unrestricted personal use of the vehicle throughout the lease, with the option to own it at the end of the term.	With a car loan, you own the vehicle from the start, with no restrictions on usage.
Restrictions	A novated lease is only available on passenger vehicles with a payload capacity below one tonne. Vehicle age restrictions usually apply.	Vehicle age restrictions usually apply to car loans.
Upfront discount on car	With a novated lease there is a GST discount of up to $6,334 on the purchase price of the car (in FY 2025/26). Novated lease companies can also often secure a ‘fleet discount’ for clients.	Generally no upfront discount when you buy a car with a car loan.
How are the payments made?	Your employer deducts the novated lease payment amount from your salary and pays it to the lease provider every time you get paid.	You make the car loan payments yourself directly to the lender weekly, fortnightly or monthly.
What do the regular payments cover?	The cost of leasing the vehicle Related car-running costs (e.g. fuel/charging, insurance, registration and CTP, servicing and tyres) Finance costs and admin fee	The loan amount interest and fees (car running costs must be covered separately)
Tax implications	Up-front GST discount on vehicle cost Income tax saving as the lease payments lower your taxable income GST saving on packaged car-running costs Lease may be subject to fringe benefits tax (unless it’s an eligible EV)	No tax implications or benefits
Interest rates	Novated lease interest rates vary based on your application and credit history. The interest rate is fixed for the life of the lease.	Car loan interest rates vary based on your application and credit history. The interest rate is usually fixed for the life of the loan.
Fees	Finance establishment fee Regular novated lease admin fee	Finance establishment fee Regular car loan servicing fee
Insurance requirement	Vehicle must be covered by comprehensive car insurance. The cost can be packaged into your lease with a potential tax saving	Vehicle must be covered by comprehensive car insurance. The cost must be covered separately with no tax saving.
Balloon payment	Known as the ‘residual payment’, this is a larger one-off payment required at the end of the novated lease for you to own the car outright.	You may have the option to include a balloon payment at the end of your car loan term. This is a large one-off payment that lowers your regular repayments.
Options at the end of the term	Make the residual payment to own the car outright. Trade in the car and start a new lease with a new car. Renew/extend your lease with the same car.	At the end of the finance term the loan is closed out and any obligations to the lender end.
How long is the term?	A novated lease term can be any duration between six months and five years.	Car loan terms are generally between one and seven years.
Eligibility	Must be an employee of a company that offers novated leasing as a benefit. Must be an Australian citizen or permanent resident. Must be over 18 years of age. Must pass a credit check and meet the finance provider’s other criteria (bad credit novated leases are available).	Must be an Australian citizen or permanent resident. Must be over 18 years of age. Must pass a credit check and meet the finance provider’s other criteria.

Novated lease vs car loan: Pros and cons of each

Depending on your situation and priorities, there are pros and cons to a novated lease and a car loan. Here are the main ones.

Novated lease pros

Allows you to pay for a car and running costs using your salary before tax is deducted meaning you pay less tax (i.e. you salary sacrifice the cost of your car to lower your taxable income).
You get a GST discount on the purchase price of the car and packaged running costs.
There’s a significant extra tax saving available if you novate an eligible electric car as they are exempt from fringe benefits tax.
A novated lease provider assists with establishing the lease, finding you a car (potentially with a further ‘fleet discount’) and managing your lease from start to finish.

Novated lease cons

Your employer must agree to offer novated leasing as a benefit (not all employers do this).
If you change jobs during the lease term, unless your new employer takes over the lease (many will), you will be responsible for continuing the lease repayments with after-tax money, like standard car finance.
There is a residual payment due at the end of the lease, which must be made using after-tax money (e.g. your savings or the trade in value of the car).
With the exception of eligible electric vehicles, novated leases are subject to fringe benefits tax (FBT).

Car loan pros

No need to involve your employer in the arrangement.
Options for longer terms than a novated lease (up to seven years).
Payments can generally be made weekly, fortnightly or monthly.
You may have the flexibility to make extra repayments to pay off the loan early.
You have full ownership of the car from the start of the loan term.

Car loan cons

No GST saving on the upfront cost of the car.
All payments must be made with after-tax funds (there is no income tax saving available).
Your car running costs must be covered separately (a car loan typically can only cover the purchase price of the vehicle itself) and there’s no saving on these costs.

Below are some sample calculations showing the cost of a novated lease versus a car loan, but if you want to estimate novated lease costs for yourself, you can try our novated lease calculator.

Novated lease vs car loan example cost comparison 2026 (EV)

	EV Novated lease	Car loan
Vehicle price (Tesla Model Y RWD)	$64,014	$64,014
GST saving on vehicle	-$5,518	$0
Weekly cost	$216 (includes $84 in running costs)	$383 (loan repayment & $84 in running costs)
Weekly income tax saving	$102	$0
Weekly GST saving	$32	$0
Tax saving over 5 years (GST & income tax)	$34,788	$0
Total cost of car & running costs over 5 years (including residual value)	$72,661	$99,850
Cost difference		+$26,919
*Calculation is based on a driver in NSW with an annual gross salary of $100,000 driving 15,000km per year. Running costs include: electricity, comprehensive insurance, registration and CPT, servicing and tyres. Pricing is accurate as of March 2026. For this example, the car loan interest rate is assumed to be 8.00% p.a. with no loan fees. This is an example for illustrative purposes only based on the assumptions described. Your cost and savings may be different depending on your situation.

Novated lease vs car loan example cost comparison 2026 (non-EV)

	Novated lease	Car loan
Vehicle price (2026 Toyota RAV4 XSE Wagon Hybrid)	$63,849	$63,849
GST saving on vehicle	$5,504	N/A
Weekly cost	$326 (car and running costs)	$406 (car and running cost)
Weekly income tax saving	$44	$0
Weekly GST saving	$14	$0
Tax saving over 5 years (GST & income tax)	$15,020	$0
Total cost of car & running costs over 5 years (including residual value)	$101,219	$105,560
Cost difference		+$4,341
*Calculation is based on a driver in NSW with an annual gross salary of $100,000 driving 10,000km per year. Running costs include: fuel, comprehensive insurance, registration and CPT, servicing and tyres. Pricing is accurate as of March 2026. For this example, the car loan interest rate is assumed to be 8.00% p.a. with no loan fees. This is an example for illustrative purposes only based on the assumptions described. Your cost and savings may be different depending on your situation.