# Novated lease or car loan: which way to pay? A novated lease and a car loan can pay for the same car. They work very differently, and which one costs you less depends on your income, the car, how long you keep it and how settled your job is. ## The short answer A novated lease pays for the car and its running costs from your salary, partly before tax, through your employer. A car loan is paid from your take-home pay and has nothing to do with your employer. The lease usually saves more on higher incomes and electric cars; the loan is simpler, moves with you between jobs, and you can pay it off early. The only way to know for your situation is to price both on the same car. ## How a novated lease works A novated lease is an agreement between you, your employer and a financier. Your employer takes the lease payments and a budget for running costs out of your pay, and pays them on your behalf. Part of that comes out before income tax, which is where the saving comes from. Running costs are included: fuel or charging, servicing, tyres, registration and insurance. Your employer may also be able to claim the GST on the car price, so less is financed. At the end of the lease there is a residual (a lump sum set by ATO guidelines). You can pay it out and keep the car, refinance it, or sell or trade the car and start again. ## How a car loan works A car loan is between you and a lender. You own the car, the lender holds it as security, and you make the repayments from your take-home pay. Running costs are yours to pay as they come. Your employer has nothing to do with it, so changing jobs changes nothing. You can usually choose a term, add a balloon or not, and pay it off early (check the fees). Every advertised car loan rate must come with a comparison rate. ## What decides which costs less Navo prices both on the same car, with running costs included, so the comparison is like for like. These are the things that move the answer most: - Your income: the higher your marginal tax rate, the more a pre-tax payment saves. - The car: eligible electric cars can be exempt from fringe benefits tax on a novated lease, which changes the result a lot. - How settled your job is: a lease follows your employer, a loan follows you. - The residual: a lease ends with a lump sum; a loan can end with nothing owing. - How far you drive: running costs are packaged on a lease and paid as you go on a loan. ## Things people often miss A lease saving is a tax saving, so it depends on your tax position. The residual has to be paid, refinanced or traded at the end. And a car loan rate on its own says little: compare the total cost over the time you plan to keep the car. ## Worked examples Open an example in the Navo engine, add your own income, and see the figures for every way to pay. [Work it out](https://navo.au/#start). - **A nurse buying a new electric car.** Employer offers salary packaging, a new electric SUV, wants to own it in the end. - **An office worker buying a used petrol car.** No salary packaging at work, a used petrol hatch, keeping the total cost down. ## Questions ### Is a novated lease always cheaper than a car loan? No. It often costs less on higher incomes and eligible electric cars, but on lower incomes, cheaper cars or short time frames a car loan can cost less. Price both on the same car to see. ### Can I get a novated lease if my employer has never offered one? Any employer can agree to one. The employer signs the agreement and runs the deductions through payroll; our partner millarX can set it up with them. ### Do I own the car on a novated lease? The financier owns it during the lease. At the end you can pay the residual and own it, refinance the residual, or sell or trade it. ### What happens to a novated lease if I leave my job? If your new employer agrees, the lease moves with you. If not, it stays with you and the payments come from your take-home pay. See our guide on changing jobs. ## Related guides - [The electric car FBT exemption, explained](https://navo.au/guides/electric-car-fbt-exemption/) - [What happens to a novated lease when you change jobs](https://navo.au/guides/novated-lease-changing-jobs/) Reviewed 2026-10-07. --- General information only, not tax or financial advice. Tax savings depend on your circumstances. Navo's results are general information and indicative only. They are based on what you tell us and our assumptions, are not a credit assessment, quote or tax advice, and don't take all of your circumstances into account. Credit is subject to the lender's criteria. Fees and charges apply. Navo is a trading name of Blackrock Leasing Pty Ltd ABN 15 681 267 818, Australian Credit Licence 569484.