Car Finance in Australia: Traditional Loan vs Novated Lease, Which is Better?

Two Popular Options — Very Different Outcomes

When it comes to getting a new car, most Australians think of a traditional loan.

But novated leases are gaining popularity for a reason — they come with major tax and cash flow advantages.

Let’s break down the pros and cons of each option.

Traditional Car Loan

You borrow money from a bank or lender, buy the car, and make monthly repayments.

Pros:

• You own the car once the loan is paid off
• Flexible loan terms (3–7 years)
• No employer involvement
  

Cons:

• All repayments are made from after-tax income
• You pay all running costs (fuel, rego, servicing, etc.)
• No access to fleet discounts
• More pressure on your personal cash flow

Novated Lease

A novated lease is a three-way agreement between you, your employer, and a finance company.

Lease and running costs are paid from a mix of pre-tax and post-tax salary — via salary packaging.

Pros:

• Reduce your taxable income (more money in your pocket)
• Running costs (fuel, tyres, rego, insurance) can be bundled
• Access to fleet discounts and tax incentives
• Drive away with no upfront deposit
• Upgrade, buy out, or refinance at lease-end
• Great for EVs and hybrids thanks to additional tax breaks
  

Cons:

• Requires employer participation
• You don’t fully own the car until the residual is paid

So, Which Option Is Smarter?

A traditional loan may give you full ownership, but it’s often more expensive overall:

• You’re paying entirely with after-tax income
• You miss out on bundled cost savings and tax perks
• You deal with unexpected costs (tyres, servicing, etc.)
  

With a novated lease, you enjoy:

• Predictable repayments
• Tax savings every pay cycle
• Fewer financial surprises
• Access to better deals on new cars, fuel, and servicing

Final Word

If you’re planning your next car purchase, don’t default to what’s familiar.

A novated lease can save you thousands, simplify your expenses, and give you access to a newer, better car without a big upfront cost.

BMG provides educational content only. Speak to a qualified broker or tax adviser to see if a novated lease is right for you.

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