Quick answer: A novated lease lets you pay for a car and many of its running costs out of your pre-tax salary through your employer, which can reduce your taxable income. A car loan is finance you take out yourself to buy the car outright, so you own it from day one. A novated lease often suits salaried employees chasing tax efficiency; a car loan suits people who want ownership, are self-employed, or don’t have employer payroll deductions. Alpha390 arranges car loans directly and can refer novated lease enquiries to our leasing partner.
The short version
| Novated lease | Car loan | |
|---|---|---|
| Who owns the car | Leasing company during the term (you can buy at the end) | You do, from day one |
| Paid from | Pre-tax + post-tax salary (via employer) | Your own funds / after-tax income |
| Bundles running costs? | Yes — fuel, servicing, rego, insurance can be included | No — you pay those separately |
| GST on the car | Usually claimed by the leasing company | You pay GST in the price |
| Best for | Salaried employees wanting tax efficiency | Owners, self-employed, ABN holders, no-payroll situations |
| End of term | Pay residual, refinance, or trade | Loan ends; car is yours |
How a novated lease works
Your employer agrees to deduct lease payments from your salary — part pre-tax, part post-tax to offset FBT. The lease and the car’s running costs are bundled into one regular deduction. Because a chunk comes out before tax, your taxable income drops, which is where the saving comes from. It only works if your employer offers novated leasing through their payroll. Novated leasing is fulfilled by our specialist partner; Alpha390 helps you get the enquiry to the right place.
How a car loan works
You borrow to buy the car and own it immediately, with the lender holding security until it’s paid off. You choose the term (commonly 3–7 years) and can add a balloon payment to lower regular repayments. Running costs are yours to manage. A car loan is simple, flexible, and doesn’t depend on your employer — which is why it suits the self-employed and business owners.
Which one saves you money?
It depends on your salary, the car, and whether you’ll use it for work. Broadly:
- A novated lease tends to win for higher-income salaried employees who want running costs bundled and taxable income reduced — especially on newer or electric vehicles that attract concessions.
- A car loan tends to win when you value outright ownership, are self-employed or an ABN holder, want to keep the car long after the term, or your employer doesn’t offer novated leasing.
There’s no universal answer — run your own numbers and get advice for your situation.
Electric vehicles change the maths
EVs under the luxury car tax threshold can attract an FBT exemption on a novated lease, which has made leasing an EV noticeably more attractive for many employees. If you’re weighing an EV, it’s worth comparing a novated lease against an EV car loan specifically.
Novated lease vs car loan FAQs
Is a novated lease cheaper than a car loan?
It can be, mainly for salaried employees on higher incomes, because payments come partly from pre-tax salary and running costs are bundled. But it depends on your income, the car and your employer’s setup. For someone self-employed or without payroll deductions, a car loan is often the simpler and better fit. Compare both for your own circumstances.
Do I own the car on a novated lease?
Not during the lease — the leasing company does. At the end of the term you can pay the residual (balloon) to own it, refinance that amount, or hand the car back and start again. With a car loan you own the car from the start, with the lender holding security until it’s repaid.
Can I get a novated lease if I’m self-employed?
Generally no — a novated lease relies on employer payroll deductions, so it suits salaried employees. If you’re self-employed or an ABN holder, a car loan or a business car finance facility is usually the right path. Alpha390 arranges those directly.
What happens at the end of each?
On a novated lease you pay the residual, refinance it, or trade the car in. On a car loan the loan simply finishes and the car is fully yours (any balloon is paid out). Both let you roll into a new vehicle if you want to.
How do I decide?
Look at whether your employer offers novated leasing, your income and tax position, whether you want to own the car long-term, and your running-cost preferences. Then get tailored advice. Alpha390 can arrange a car loan directly or refer your novated lease enquiry to our partner.
Not sure which suits you? Talk to Alpha390 — we’ll arrange a competitive car loan directly, or point your novated lease enquiry to our specialist partner.
Written and reviewed by the Finance Director at Alpha390 Finance.
This article is general information only and does not constitute credit, financial or tax advice. Consider whether it is appropriate for your circumstances and seek independent tax advice. Novated leasing is facilitated through a third-party partner. Alpha390 operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, lending criteria, terms, conditions and fees.
