Novated Lease vs Car Loan: Which Is Better in 2025?

Novated Lease vs Car Loan: The Complete Comparison

One of the most common questions we get is: "Should I get a novated lease or a car loan?" The answer depends on your income, employer, and how you use your car.

What Is a Novated Lease?

A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer deducts lease payments from your pre-tax salary, which can reduce your taxable income.

How it works:

1. You choose a car (new or used)
2. A finance company buys the car
3. You lease it from them
4. Your employer deducts payments from your salary
5. At the end, you can pay the residual value to own it

What Is a Car Loan?

A car loan is straightforward. You borrow money from a bank or lender to buy a car. You make regular repayments from your after-tax income until it's paid off. You own the car outright once complete.

The Key Differences

Factor	Novated Lease	Car Loan
Tax benefit	Yes (pre-tax deductions)	No
Running costs included	Usually (bundled package)	No
Employer involvement	Required	Not needed
FBT implications	Post-2025 EV exemption	None
Ownership	At lease end (residual)	Immediate
Flexibility	Tied to employment	No restrictions

When Novated Lease Makes Sense

You're in a high tax bracket (37%+) The higher your marginal tax rate, the more you save by paying pre-tax. Someone earning $120k saves significantly more than someone on $60k.

Your employer offers it Not all employers participate in salary packaging. You need one that does.

You're buying an EV (electric vehicle) The FBT exemption on EVs under $89,332 (2024-25) makes novated leasing extremely attractive for electric cars.

You want running costs bundled Most novated packages include registration, insurance, servicing, and fuel in one payment.

When Car Loan Makes Sense

You're self-employed Novated leases require an employer. No employer = no novated lease.

Your income is lower If you're in the 19% or 32.5% tax brackets, the savings may not justify the complexity.

You want flexibility If you might change jobs, move overseas, or your situation is uncertain, a car loan is simpler.

You want to own immediately With a car loan, the car is yours from day one.

Real Numbers: Brisbane Example

Let's compare buying a $50,000 Toyota RAV4:

Scenario A: Novated Lease

• Salary: $100,000
• Pre-tax deduction: ~$900/month
• After-tax cost: ~$630/month
• Annual tax saving: ~$3,240
• Running costs: Included

Scenario B: Car Loan (5 years, 7.5%)

• Monthly payment: ~$1,000
• After-tax cost: $1,000/month
• Running costs: ~$400/month extra
• Total monthly cost: ~$1,400

In this example, the novated lease saves about $770 per month. Over five years, that's over $46,000 in savings.

The EV Game-Changer

Since July 2022, eligible electric vehicles are exempt from Fringe Benefits Tax. This makes novated leasing particularly attractive for EVs like:

• Tesla Model 3
• BYD Atto 3
• MG ZS EV
• Hyundai Ioniq 5/6
• Kia EV6

The tax savings on EVs can be substantial—often saving $10,000-$20,000 per year compared to buying outright.

What Happens If You Change Jobs?

This is the biggest concern with novated leases.

Option 1: Transfer to new employer If your new employer offers salary packaging, you can transfer the lease.

Option 2: Take personal responsibility You can continue the lease personally, but you lose the tax benefits.

Option 3: Pay out the lease You can pay the remaining amount to end the lease early.

Questions to Ask Before Deciding

1. Does my employer offer salary packaging?
2. What tax bracket am I in?
3. Am I considering an EV?
4. How stable is my employment?
5. Do I want bundled running costs?
6. What's my five-year plan?

How We Help

We work with finance specialists who can run the exact numbers for your situation. Whether you go novated or traditional car loan, we can:

• Find the right car at the best price
• Connect you with competitive finance options
• Handle all the paperwork
• Deliver to your door in Brisbane, Gold Coast, or Sunshine Coast

Need help deciding? Chat with us—we're happy to point you in the right direction, no obligation.