Novated lease vs car loan
A novated lease is paid from your salary, partly or fully before tax, with FBT applying unless the car is an eligible EV and a residual due at the end. A personal car loan is repaid from after-tax pay, with no FBT and usually no residual. In 2026-27 the lease tends to win for FBT-exempt EVs; for petrol cars it is closer. Source: ATO.
General information only, not financial, tax or credit advice. We do not compare, recommend or link to car loans or lenders. Background: how a novated lease works. Run the lease side in the novated lease calculator.
Key differences
| Feature | Novated lease | Car loan |
|---|---|---|
| Who is involved | You, your employer and a lessor | You and a lender |
| Paid from | Salary deductions, pre-tax and/or post-tax | After-tax pay |
| FBT | 20% statutory formula, usually reduced to nil by post-tax contributions; nil for exempt EVs ATO ATO | Not applicable |
| End of term | Residual, at least the ATO minimum (e.g. 46.88% of cost for 3 years) ATO | Depends on the loan (ask your lender) |
| Running costs | Can be packaged | Paid separately from after-tax pay |
| If you change jobs | Depends on the agreement (ask your lessor) | Unaffected by your employer |
Which costs less? A worked comparison
Assumptions: $100,000 salary, 3 years, the same example 8% p.a. rate on both (not a quoted rate), no fees, no deposit, the loan repaid in full with no balloon. Lease totals include the residual. Lease figures come from our calculator; loan repayments use the same payment formula with no residual.
| Car | Novated lease (net of tax saving, plus residual) | Car loan (after-tax repayments + running costs) |
|---|---|---|
| BEV $60,000, FBT exempt | $67,368 | $82,687 |
| Petrol $40,000 | $53,952 | $57,124 |
The BEV lease is paid entirely pre-tax, saving $6,155 a year in income tax and Medicare levy. The petrol lease saves only $1,757 a year because $8,000 goes in as post-tax contributions to remove FBT. The loan gets no tax saving, so your tax stays at $22,520 a year. Rates and fees differ in real life, so swap in your own numbers.
When might a car loan suit you better?
- Your taxable income is low. At or below $18,200 there is no income tax to save, so the novated lease's main advantage disappears (ATO).
- The car is not FBT exempt and is cheap to run. The 20% statutory formula means a large share of the lease is post-tax, with no tax saving on that part.
- You expect to change jobs. A loan does not depend on your employer; what happens to a novated lease depends on the agreement, so ask your lessor.
- You do not want a residual. A lease ends with a lump sum of at least the ATO minimum residual value.
What this comparison leaves out
- Real interest rates and fees on either side (we hold no verified rate data; ask each lender and lessor).
- Deposits, balloons on the loan, or early payout costs.
- Interest you could earn on cash you keep.
- The reportable fringe benefit on an exempt EV lease and its effect on income tests (not verified).
- GST credits the employer may claim on lease payments and running costs (calculator assumption, not verified).
Related: novated lease vs buying outright and is a novated lease worth it. If you have a lease quote, the quote checker finds the rate built into it.
Commercial links
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Frequently asked questions
Is it better to get a car loan or a novated lease?
It depends on the car and your tax rate. In our model an FBT-exempt EV usually comes out ahead on a novated lease because the whole package is paid pre-tax. For a petrol car the 20% FBT statutory formula pushes part of the cost into post-tax pay, so the gap narrows or reverses. Interest rates and fees on both sides decide the rest.
Does a novated lease count as a loan?
A novated lease is a finance arrangement, but how it is treated for credit and lending purposes is not covered by our verified sources. Ask the lessor how it appears on your credit file.
Do you pay FBT on a car loan?
No. FBT applies to fringe benefits provided through your employer, such as a novated lease car. A personal car loan is paid from your after-tax pay with no employer involvement.
By . Published by Abdisalan Awale, ABN 64 886 470 398 (about us). Last reviewed 17 Oct 2026 against the sources on our sources page. Not yet reviewed by a qualified third party. How we calculate: methodology.