Novated Lease vs Car Loan [2025]

Quick Answer: Novated Lease vs Car Loan

Choose a novated lease if: You earn $90,000+, your employer offers salary packaging, and you want tax savings with bundled running costs.

Choose a car loan if: You're self-employed, might change jobs, want flexibility, or prefer immediate ownership.

For EVs: Novated leasing is almost always better due to the FBT exemption (saving $5,000-$15,000+ per year).

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Brisbane & SEQ quick take

Novated leasing can be great if you’re eligible and your employer’s salary packaging is competitive — but the right choice depends on your income, how long you’ll keep the car, and whether you’re buying an EV.

If you want a simple comparison for your situation, start here: Car Finance Brisbane.

Need help sourcing the car as well? Start here: Brisbane car broker.

Key Takeaways

• Compare total cost over the time you’ll actually keep the vehicle.
• Understand the basics of Fringe Benefits Tax (FBT) and check current guidance: Fringe benefits tax (ATO).
• EV novated leasing can be compelling, but only if the finance, residual and running costs are realistic.
• If you might change jobs soon, flexibility matters.

⚠️ Important April 2025 Changes

From 1 April 2025, Plug-in Hybrid Electric Vehicles (PHEVs) no longer qualify for the FBT exemption on new novated leases.

This is a significant change that affects popular vehicles like:

• Mitsubishi Outlander PHEV
• Toyota RAV4 Prime
• BMW X5 xDrive45e
• Mercedes GLE 350e

What this means:

• New PHEV leases from 1 April 2025 will attract FBT
• Existing PHEV leases (signed before 31 March 2025) are grandfathered
• Full battery EVs (BEVs) remain FBT exempt—no change
• Hydrogen fuel cell vehicles remain exempt

If you're considering a PHEV: Act before 31 March 2025 to lock in the exemption for the full lease term.

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What Is a Novated Lease?

A novated lease is a three-way agreement between:

1. You (the employee)
2. Your employer
3. A finance/leasing company

Your employer deducts lease payments from your pre-tax salary, reducing your taxable income. Most packages also bundle running costs (fuel, insurance, servicing, rego) into one payment.

How Novated Leasing Works

1. You choose a car (new or used, typically under 7 years old)
2. A finance company purchases the car
3. You lease it from them over 1-5 years
4. Your employer deducts payments from your gross salary
5. At lease end, you pay the residual value to own it (or trade/refinance)

The Tax Benefit Explained

When you pay from pre-tax income, you effectively get a "discount" equal to your marginal tax rate:

Your Taxable Income	Marginal Tax Rate	Effective Discount
$45,001 - $135,000	30% (+2% Medicare)	~32%
$135,001 - $190,000	37% (+2% Medicare)	~39%
$190,001+	45% (+2% Medicare)	~47%

Example: If you earn $120,000 and pay $12,000/year for your car via novated lease, you save approximately $3,840 in tax (32% of $12,000).

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What Is a Car Loan?

A car loan is straightforward: you borrow money from a lender to buy a car and make regular repayments from your after-tax income until it's paid off.

How Car Loans Work

1. You apply for finance (secured against the vehicle)
2. Lender pays the seller
3. You own the car immediately (lender has security interest)
4. You make monthly repayments (principal + interest)
5. Loan paid off = car is 100% yours

Current Car Loan Rates (2025)

Credit Profile	Typical Rate Range
Excellent (800+)	6.5% - 8.5%
Good (700-799)	8% - 11%
Average (600-699)	11% - 15%
Below Average (<600)	15% - 25%

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Side-by-Side Comparison

Factor	Novated Lease	Car Loan
Tax benefit	Yes—pre-tax deductions reduce taxable income	No—repayments from after-tax income
GST on purchase	Save 10% GST on car price	Pay full GST
Running costs	Bundled (fuel, rego, insurance, servicing)	Pay separately
Employer required	Yes—must offer salary packaging	No
Ownership	At lease end (pay residual)	Immediate
Job flexibility	Must transfer or refinance if you leave	No restrictions
Best for	High income earners, stable employment	Self-employed, job changers
FBT on EVs	Exempt (under $91,387)	N/A
FBT on PHEVs	Exempt until 31/3/25, then taxable	N/A
Complexity	Higher—FBT calculations, employer involvement	Simple—standard loan

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When Novated Lease Makes Sense

✅ You're in a High Tax Bracket (32%+)

The higher your marginal tax rate, the more you save. Someone earning $150,000 saves significantly more than someone on $70,000.

Rule of thumb: If you earn over $90,000, novated leasing usually wins.

✅ Your Employer Offers Salary Packaging

Not all employers participate. Check with HR or payroll. Common in:

• Healthcare
• Education
• Government
• Large corporates
• NFPs/charities

✅ You're Buying an Electric Vehicle

The FBT exemption on EVs under the luxury car tax threshold ($91,387 for 2025/26) makes novated leasing extremely attractive.

Eligible EVs include:

• Tesla Model 3 and Model Y
• BYD Atto 3, Seal, Dolphin
• Hyundai Ioniq 5/6, Kona Electric
• Kia EV6, Niro EV
• MG ZS EV, MG4
• Polestar 2
• Volvo EX30, EX40

✅ You Want Bundled Running Costs

Most novated packages include:

• Fuel or charging
• Comprehensive insurance
• Registration
• Scheduled servicing
• Tyres
• Roadside assistance

One payment covers everything—easy budgeting.

✅ You Plan to Stay in Your Job

Novated leases work best when you're not planning to change employers. If you do leave, you'll need to transfer the lease or refinance.

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When Car Loan Makes Sense

✅ You're Self-Employed

Novated leases require an employer. Sole traders, contractors, and business owners need car loans (or chattel mortgages for tax deductions).

✅ Your Income Is Lower

If you're in the 19% tax bracket ($18,201-$45,000), the savings from novated leasing may not justify the complexity. A simple car loan is usually better.

✅ You Want Flexibility

Planning to change jobs, move overseas, take extended leave, or uncertain about your future? A car loan gives you freedom—the car is yours, no employer involvement needed.

✅ You Want Immediate Ownership

With a car loan, the car is yours from day one (subject to lender security). With a novated lease, you don't own it until you pay the residual at the end.

✅ You're Buying Private Sale or Older Vehicles

Novated leases typically require vehicles under 7-10 years old from dealers. Private sales and older cars are easier with traditional car loans.

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Real Numbers: Brisbane Example (2025)

Let's compare buying a $55,000 Toyota RAV4 Hybrid with both options:

Scenario A: Novated Lease

Your details:

• Salary: $110,000
• Tax bracket: 32.5% (+2% Medicare levy)
• Lease term: 4 years
• Annual km: 15,000

Monthly breakdown:

Component	Monthly Cost
Lease payment	$850
Fuel	$180
Insurance	$120
Rego	$70
Servicing	$60
Total pre-tax	$1,280
After-tax cost	~$870

Annual tax saving: ~$4,920

Scenario B: Car Loan

Your details:

• Loan: $55,000 at 7.5% over 5 years
• Pay running costs separately

Monthly breakdown:

Component	Monthly Cost
Loan repayment	$1,100
Fuel	$180
Insurance	$140
Rego	$70
Servicing	$60
Total after-tax	$1,550

The Verdict

In this example, the novated lease saves approximately $680 per month or $8,160 per year.

Over 4 years, that's $32,640 in savings—assuming you stay employed and don't change jobs.

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The EV Advantage: FBT Exemption Explained

Since July 2022, eligible zero and low emissions vehicles are exempt from Fringe Benefits Tax when provided via a novated lease.

Eligibility Requirements (2025/26)

To qualify for the FBT exemption:

• ✅ Vehicle is a battery electric vehicle (BEV) or hydrogen fuel cell
• ✅ First held and used on or after 1 July 2022
• ✅ Below the luxury car tax threshold ($91,387 for 2025/26)
• ✅ Used by an employee (not sole traders)

Note: PHEVs no longer qualify for new leases from 1 April 2025.

What's Exempt?

When your EV qualifies, all running costs are also FBT-exempt:

• Electricity/charging
• Registration
• Insurance
• Servicing
• Tyres

EV Savings Example: Tesla Model 3

Tesla Model 3 RWD ($57,000)

Finance Method	Effective Monthly Cost	Annual Cost
Novated Lease (FBT exempt)	~$750	~$9,000
Car Loan + running costs	~$1,400	~$16,800
Annual Savings		~$7,800

Over a 4-year lease: $31,200 saved compared to buying outright.

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What Happens If You Change Jobs?

This is the #1 concern with novated leases. Here are your options:

Option 1: Transfer to New Employer

If your new employer offers salary packaging, you can transfer the lease. The "novation" simply switches employers.

Important: For EVs/PHEVs, transferring to a new employer after 1 April 2025 ends the FBT exemption for grandfathered PHEVs.

Option 2: Continue Personally

You can continue making lease payments from your personal account, but you lose all tax benefits. Payments come from after-tax income.

Option 3: Pay Out the Lease

Calculate your payout figure (remaining payments + residual) and pay it off. You then own the car outright.

Option 4: Refinance

Some lenders will refinance your novated lease into a standard car loan. You lose tax benefits but gain flexibility.

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Questions to Ask Before Deciding

Ask yourself:

1. Does my employer offer salary packaging? (No = car loan)
2. What's my marginal tax rate? (Under 30% = car loan probably better)
3. Am I considering an EV? (Yes = novated lease almost always wins)
4. How stable is my employment? (Uncertain = car loan safer)
5. Do I want bundled running costs? (Yes = novated lease)
6. Am I buying new or used? (Private sale/old = car loan easier)
7. What's my 3-5 year plan? (Leaving Australia = car loan)

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Finance Options Across South East Queensland

Whether you prefer a novated lease or car loan, we work with specialists across SEQ:

• Car Finance Brisbane – Novated leasing and traditional loans
• Gold Coast Finance – Compare rates from 30+ lenders
• Sunshine Coast Car Loans – All finance types available
• Ipswich Finance Options – Competitive rates for all buyers
• Toowoomba Car Finance – Regional lending specialists

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Frequently Asked Questions

Is a novated lease worth it in 2025?

Yes, if you earn $90,000+ and your employer offers salary packaging. For EVs under $91,387, novated leasing can save $5,000-$15,000+ per year due to the FBT exemption. For petrol/diesel cars, the savings depend on your tax bracket—higher income = bigger savings.

What's the FBT exemption threshold for EVs in 2025?

The luxury car tax threshold for fuel-efficient vehicles is $91,387 for 2025/26. EVs priced below this are eligible for the FBT exemption when acquired via novated lease. If the car exceeds this threshold, FBT applies on the amount above.

Can I get a novated lease if I'm a contractor?

Only if you're employed through a company that offers salary packaging. Independent contractors and sole traders cannot access novated leases—consider a chattel mortgage or car loan with potential tax deductions through your business.

What happens to my novated lease if I get made redundant?

You become personally responsible for the lease payments. You can: continue paying personally (no tax benefits), pay out the remaining balance, or potentially transfer to a new employer if you find another job quickly. Check your lease agreement for specific terms.

Are plug-in hybrids still FBT exempt?

Only if your lease was signed and vehicle delivered before 31 March 2025. From 1 April 2025, new PHEV leases attract FBT. Existing grandfathered leases remain exempt for their full term unless you change employers or modify the lease.

Can I include a used car in a novated lease?

Yes, most novated lease providers accept used cars typically up to 7-10 years old at lease end. The car must be purchased through a dealer (not private sale) and meet the provider's requirements. Used EVs can still qualify for the FBT exemption if they meet all criteria.

How much deposit do I need for a novated lease?

Most novated leases require no deposit—the full amount is financed. However, putting down a deposit reduces your monthly payments and can mean a lower residual at lease end. Some employees use their tax return as a lump sum payment.

What's the residual value at the end of a novated lease?

The residual is set by the ATO based on lease term:

• 1 year: 65.63%
• 2 years: 56.25%
• 3 years: 46.88%
• 4 years: 37.50%
• 5 years: 28.13%

You pay this amount to own the car at lease end, or you can refinance/trade.

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How We Help

We work with finance specialists who can run the exact numbers for your situation. Whether you choose 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 across Brisbane, Gold Coast, or Sunshine Coast

Need help deciding? Contact us for a no-obligation chat. We'll tell you honestly which option makes more sense for your situation.