A novated lease and a car loan both get you into the same car — but they route your money very differently. One bundles the car, running costs and a chunk of tax savings into your pay packet; the other is a straightforward debt you repay with after-tax dollars. The honest answer to "which costs less?" is: it depends on your salary, the car, and how long you keep it. Here's how to work it out without the sales spin.
The core difference in one minute
A car loan is simple. You borrow money, pay it back with interest, and the car is yours from day one. Every dollar you spend — repayments, fuel, insurance, servicing — comes out of your take-home (after-tax) pay.
A novated lease is a three-way arrangement between you, your employer and a leasing company. Your employer redirects part of your salary to cover the lease and running costs, some of it from pre-tax dollars. That's where the saving comes from — but it also comes with fees, a residual (balloon) you must pay at the end, FBT rules, and consequences if you change jobs.
Where a novated lease can win
- Part of the cost is paid from pre-tax salary, which can lower your taxable income (FBT rules and the employee-contribution method affect exactly how much).
- Running costs (fuel or charging, insurance, rego, tyres, servicing) are bundled, and you generally don't pay GST on the car's purchase price up to the GST credit cap.
- Eligible electric vehicles priced under the fuel-efficient Luxury Car Tax threshold may attract an FBT exemption — potentially a big saver. Eligibility and thresholds change (for example, plug-in hybrid rules have already shifted), so confirm current eligibility with the ATO.
- Everything is one automatic deduction, so budgeting is predictable.
Model your own numbers with the novated lease calculator — it estimates the true net saving after fees and the residual, not just the headline "pay less tax" pitch. Because the EV break hinges on the price cap, run the car past the LCT threshold check first, and if you're weighing an EV the EV vs petrol running-cost tool shows how much the fuel/charging gap adds on top.
Where a plain car loan wins
- No residual/balloon surprise at the end (unless you deliberately choose a balloon on the loan).
- You own the car outright and can sell it whenever you like.
- No employer involvement — it survives a job change untouched.
- Fewer ongoing management fees eating into the deal.
Run the repayments, total interest and any balloon with the car loan calculator so you're comparing the real all-in cost, not just the monthly figure a lender advertises.
The residual is the part people forget
At the end of a novated lease you owe a set residual amount to keep the car. This follows the ATO's minimum residual guidelines, which scale with the lease term. It can be several thousand dollars, and it's easy to overlook when the fortnightly deduction looks small. Always add the residual back in before you decide a lease is cheaper.
How to actually decide
Don't trust either sales pitch. Work through this order:
- Get the drive-away price straight first with the drive-away price tool, including stamp duty and rego.
- Model the lease's true net cost including residual and fees.
- Model the loan's total cost including all interest and any balloon.
- Add running costs to both equally so the comparison is fair — the total cost of ownership tool rolls in depreciation, running and finance.
- Sanity-check tax assumptions against your real salary and the current ATO rules — they change, so don't rely on last year's figures or a broker's estimate.
As a rough guide: novated leases tend to favour higher earners and eligible EVs, while car loans often suit lower taxable incomes, people who value ownership flexibility, or anyone whose job might change during the term. Your own numbers matter more than any rule of thumb, so model both.
Novated Lease Calculator
Your true net saving vs a car loan — residual, FBT, GST and EV exemption included.
Car Loan Repayment Calculator
Repayments with optional balloon, total interest and total cost.
Whichever way you lean, the winner is the one that costs less across the full term with the residual counted — not the one with the smallest number on the quote.
Frequently asked questions
Is a novated lease always cheaper than a car loan?
No. It depends on your taxable income, the car (eligible EVs can attract extra savings), the lease fees and the residual you must pay at the end. For higher earners and eligible EVs it often wins; for lower incomes or if you want ownership flexibility, a car loan can be cheaper overall. Model both including the residual before deciding.
What happens to a novated lease if I change jobs?
The lease doesn't disappear — it becomes your personal responsibility until a new employer agrees to take it on. That means the pre-tax benefit can stop, and you may cover the payments from after-tax income in the meantime. If your job might change during the term, factor this risk in.
What is the residual (balloon) on a novated lease?
It's a lump sum you must pay at the end to keep the car, set in line with the ATO's minimum residual guidelines, which scale with the lease length. It can be several thousand dollars and is easy to overlook because the fortnightly deduction looks small. Always add it back when comparing to a loan.
Do EVs really save more on a novated lease?
Eligible electric vehicles priced under the fuel-efficient Luxury Car Tax threshold can attract an FBT exemption, which can make a lease meaningfully cheaper. Rules, thresholds and which vehicle types qualify change over time, so confirm current eligibility with the ATO and model the numbers rather than assuming.
General information only — not financial, tax or legal advice. Figures change; confirm with the ATO, your state revenue office and a licensed adviser, and use the calculators for your own numbers.