Novated lease vs car loan vs cash
Three ways to pay for the same car. Here is what each one costs, what you own at the end, and the two things that decide which comes out ahead for you.
Comparing like with like
A lease has finance costs in the same way a loan does. They sit inside the payment rather than on a line of their own, which is why a tax saving on one side and an interest rate on the other is not a fair comparison.
The comparison worth making is simpler: over the same term, what leaves your pocket, and what do you own at the end.
The three options side by side
| Who pays, and from what | What you own | Income tax effect | |
|---|---|---|---|
| Novated lease | Your employer, from your salary, mostly before tax | Nothing until you pay the residual at the end | Reduces taxable income. On this illustration the saving is $4,480 a year |
| Car loan | You, from take-home pay, after tax | The car from day one, subject to the lender | No income tax effect for a private car |
| Cash | You, once, from savings | The car outright | No income tax effect for a private car |
- Novated lease: The residual is owed whether or not the car is worth it, and the arrangement follows your job.
- Car loan: Interest is paid from after-tax income, so the real cost is higher than the rate suggests.
- Cash: The money is spent rather than earning or offsetting elsewhere, which is a real cost even though no one invoices you for it.
Where the lease benefit actually comes from
One thing, and it is worth being precise about it: the money you put into the car is not taxed on the way past. On a salary of $110,000, packaging $14,000 a year reduces income tax and Medicare levy by $4,480 a year on 2026-27 rates. Over 5 years that is around $22,400.
That is the whole mechanism. It scales with your marginal rate, which on this salary is about 32% including the levy, so the same car packaged on a lower salary returns less. It is also why the comparison has no single answer: the lease's advantage is a function of your tax position, not of the car.
Illustration only. It shows the income tax difference and nothing else: not the finance cost inside the lease payment, not the residual, and not the GST treatment. The calculator runs the same calculation on your own salary and lists what is in it.
The two things that decide it
Your marginal rate
The benefit is the tax you do not pay, so it is worth more the higher your rate. At the top bracket a packaged dollar saves close to half. On a modest salary it saves much less, and the fixed costs of the arrangement do not shrink to match.
Whether the car is FBT exempt
This is the bigger of the two. An eligible electric car carries no FBT, so the whole payment can come from pre-tax salary. A petrol or diesel car normally needs a post-tax contribution to cancel the FBT, which removes much of the benefit. Comparisons that quote electric car figures for a petrol car are comparing the wrong thing.
Which cars are actually exempt sets out the eligibility test, and what a novated lease is covers the arrangement itself if you are starting from scratch.
The details that shape the answer
- The residual. A lease ends with a balloon payment set by ATO minimums for the term. You either pay it, refinance it, or sell the car and settle the difference. A loan ends with nothing left to pay.
- Reportable fringe benefits. The packaged amount is reported on your income statement, including for an exempt electric car, and feeds the Medicare levy surcharge, Division 293 and study loan repayments. A car loan does none of that.
- Changing jobs. The novation ends with the employment. A loan does not care where you work.
- What is bundled. A lease payment usually includes registration, insurance, servicing and tyres. A loan repayment covers the car only, so a raw payment comparison is not like for like.
Common questions
Is a novated lease cheaper than a car loan
It depends on your marginal rate, whether the car is FBT exempt, and how much you drive. The tax treatment is the main difference: lease payments come from pre-tax salary while loan repayments come from after-tax income. Against that, a lease has a residual and finance costs that a cash purchase does not. It is worth running the numbers on your own salary rather than relying on a rule of thumb.
What does a specialist novated leasing provider add over one the dealer refers me to
Mainly choice and transparency, and the difference varies by dealer. A dealer referral is usually to a single provider the dealership has a relationship with, and the car is the one on their lot. A specialist arranges the lease independently of where the car comes from, so the vehicle and the finance are two separate decisions rather than one. Ask any provider the same questions: which financiers they can access, whether the car is sourced competitively or fixed to one dealership, what fees are in the payment, how running-cost budgets are set and what happens to a surplus, and what the end-of-lease options are. The answers matter more than the label.
Get a quote
A real comparison needs real numbers: the car, the term, the residual and what is bundled into the payment. That comes from a provider quote rather than from any page, including this one.
Quote form loads here
The quote form sits in this position. Placeholder until the embed code is supplied.
Novii is an information and referral service. When you request a quote your details are provided to an Australian novated leasing provider. Novii is not a lease provider, financier or financial adviser.
Illustrative only. Information only, not tax, financial or credit advice.