Novated Leasing vs Traditional Car Loans: Which is Right for You?

When it comes to financing a vehicle, two common options are a novated lease and a traditional car loan. While both can get you behind the wheel, they work quite differently – and the right choice depends on your personal and financial circumstances.

Let’s explore the key differences so you can make an informed decision.

What Is a Novated Lease?
A novated lease is a three-way agreement between you, your employer and a finance company. Your employer makes the lease payments directly from your pre-tax salary – which can offer some tax advantages.

You don’t own the car – you’re leasing it for an agreed period. At the end of the term, you may have the option to purchase the vehicle, refinance the residual value, or start a new lease.

Pros of Novated Leasing:

• Tax savings by reducing your taxable income

• All vehicle expenses (fuel, insurance, rego, servicing) may be bundled into one payment

• No upfront deposit required

• Convenient for budgeting and managing running costs

Cons of Novated Leasing:

• You must be employed by a company that offers salary packaging

• You don’t own the car outright

• Early termination fees can apply

• It may not suit people who change jobs frequently

What Is a Traditional Car Loan?
A traditional car loan allows you to borrow a fixed amount to purchase a vehicle, which you then repay in instalments over a set term (usually 3 – 5 years).

You own the car from day one, and the loan is repaid from your post-tax income.

Pros of a Traditional Car Loan:

• You own the car outright

• Suitable for self-employed, casual or part-time workers

• More flexibility with lenders and loan terms

• Easier to sell or upgrade the car at any time

Cons of a Traditional Car Loan:

• No tax benefits for everyday users (unless the vehicle is for business)

• You’re responsible for all running costs

• Requires good budgeting to cover repayments and expenses separately

Which Option Is Right for You?
If you work full-time for an employer that offers salary packaging and you want a convenient, tax-effective way to run a car – a novated lease might work well.

On the other hand, if you want ownership, flexibility, and more control over your vehicle, a car loan may be the better choice.

At Finance One, we specialise in helping people from all backgrounds – including those with bad credit – get approved for car loans. Even if you’ve been declined elsewhere, we’re here to help.

Need Help Deciding?
Use our car loan calculator to compare repayment scenarios and see what works for your budget. Or reach out to our friendly team – we’ll guide you through your options with zero pressure.

Final Thoughts
Both novated leases and car loans have their place. It all comes down to what’s most important to you – flexibility, ownership, tax benefits or simplicity.

If you’re ready to explore your finance options, we’re here to help every step of the way.