Car Loan vs Novated Lease: Which Suits You?

A car loan means you own the car from day one and repay a lender over a fixed term. A novated lease is a three-way arrangement between you, your employer and a finance company, with payments taken from your pre-tax pay. A car loan suits most people who want ownership and flexibility. A novated lease can suit PAYG employees whose employer offers it, especially for electric vehicles. Greenside Finance writes car loans, so this guide is upfront about where a novated lease may be the better fit.

By Tom Dihm, Director, Greenside Finance. Last updated: 5 October 2026.

How a car loan works

You borrow money from a lender and use it to buy the car. The car is yours straight away, and the lender usually holds security over it until the loan is repaid. You make regular repayments over a set term, commonly one to seven years.

You can buy new, used or through a private sale. You choose the car, the seller and when to sell. If you sell before the loan ends, the loan is paid out from the sale.

What a car loan suits

• Sole traders, contractors and self-employed people who do not have an employer to package through.
• Anyone who wants full control of the car, including selling or trading it when they like.
• Buyers of used cars and private sales, where novated providers can be limited.
• Workers who change jobs often, such as FIFO and contract roles.

How a novated lease works

A novated lease is set up through your employer. The finance company leases the car, and your employer pays the lease from your salary, usually before tax. Running costs such as fuel, servicing, rego and insurance can often be bundled in.

The car is not yours during the lease. At the end there is a residual (balloon) amount. Depending on the contract, you can pay it out and keep the car, refinance it, or hand the car back.

What a novated lease suits

• PAYG employees whose employer offers salary packaging.
• People who like one regular deduction that covers car costs.
• Buyers of eligible electric vehicles, which may be exempt from fringe benefits tax. Plug-in hybrids and cars over the threshold can be treated differently, and rules change, so check the current position with your accountant.

Car loan vs novated lease at a glance

• Ownership: loan, you own it. Novated lease, the lessor owns it until you pay the residual.
• Who it is for: loan, anyone with income. Novated lease, employees of participating employers.
• If you change jobs: loan, nothing changes. Novated lease, the arrangement needs to be moved or paid out.
• Tax: loan, deductions mainly apply if the car is used for business. Novated lease, pre-tax packaging and FBT rules apply.
• Choice of car: loan, almost any car. Novated lease, depends on the provider.
• Fees and interest: both have them. Compare the comparison rate and all fees, not just the repayment.

Tax is where people get caught

The tax side of a novated lease is the main reason people choose it, and it is also where mistakes happen. Savings depend on your income, the car, how much you drive and the residual. A car loan has its own tax effects if you use the car for work.

We are finance brokers, not tax advisers. Before signing either, ask your accountant to run the numbers for your situation.

Which one should you pick?

Ask yourself four questions.

1. Am I a PAYG employee, and does my employer offer packaging?
2. Do I want to own the car outright and keep full control?
3. Is my job stable enough to tie a lease to it?
4. Am I buying new, used or private sale?

If you are self-employed, buying used, or want to keep things simple, a car loan is usually the cleaner option. If you are a PAYG employee with a packaging-friendly employer, get a novated quote alongside a loan quote and compare the full cost over the term.

We work with 40+ lenders from our Subiaco office and lend Australia-wide, so you can compare loan options without applying to each lender yourself. If a novated lease looks like the better path for you, we will say so.

Common questions

Is a novated lease cheaper than a car loan?

Not always. The pre-tax benefit can make repayments feel cheaper, but fees, interest and the residual still count. Compare total cost over the term, and ask your accountant to check the tax.

Can I get a car loan if my employer does not offer salary packaging?

Yes. A car loan does not depend on your employer. Lenders assess your income, expenses and credit history.

Who owns the car on a novated lease?

The finance company owns the car during the lease. You can pay out the residual at the end to own it.

Does Greenside Finance offer novated leases?

No. We arrange car loans and asset finance, not novated leases. If a novated lease suits you better, we will tell you so you can get a quote from your employer's provider.

What if I am a FIFO worker?

FIFO workers often have stable incomes, and roster pay can be assessed on a loan. See our FIFO car loans page.

Ready to compare? Tell us what you are buying and we will show you your car loan options. Get a free quote.