A car loan and a novated lease both let you drive a car without paying the full price upfront, but they work differently. With a car loan, you borrow from a lender, you own the car, and you make the repayments yourself. With a novated lease, you, your employer and a lease provider agree that the employer pays the lease and running costs, usually from your pay.
Which one is cheaper depends on your tax position, the fees, the residual or balloon, the car and how long you stay in the job. There is no single winner. A fair comparison puts both options on the same car, the same term and the same running costs, and looks at the total cost over the full period.
NewGen arranges car loans, so we can model the loan side. For the novated lease and tax side, speak to your employer’s provider and a tax adviser.
What is the difference between a novated lease and a car loan?
Here is a side-by-side view. It is general information only, and individual contracts differ.
| Feature | Car loan | Novated lease |
|---|---|---|
| Who it suits | Anyone who wants a straightforward loan and full control of the car | Employees whose employer offers novated leasing and who want repayments and running costs packaged together |
| Who owns the car | You own it, though the lender usually holds security over it | The lease provider generally owns it during the lease |
| How you pay | Repayments from your own account | Usually deducted from your pay through your employer |
| Tax treatment (general) | Loan repayments are usually paid from after-tax income. A tax adviser can say whether any part is deductible for you | May involve pre-tax and post-tax pay deductions and fringe benefits tax rules. Speak to a tax adviser and read the ATO guidance |
| Residual or balloon | Optional. You choose whether to have a balloon, subject to lender policy | Usually required, set by tax rules and the lease structure. Ask your provider how the residual is set |
| If you change jobs | The loan stays with you and continues as normal | The arrangement may need to be moved, paid out or restructured. Check before you sign |
| Fees | Establishment, ongoing and early repayment fees can apply | Provider fees, such as management or administration, can apply on top of the lease itself |
| Running costs | Paid separately by you | Can often be bundled into the lease, depending on the provider |
Moneysmart explains the basics of car loans, including balloon payments and fees (Moneysmart, checked October 2026).
How does a car loan work?
You apply to a lender, they approve a loan amount, and you buy the car. You repay the loan over an agreed term, usually with interest and fees. The lender normally takes security over the vehicle until you pay it out.
Because the loan is with you personally, it stays in place if you change employer. You can usually choose the term and, if the lender allows it, a balloon. Lending criteria, fees and charges apply, and approval is subject to the lender.
If you want to check the maths on a loan, try the car and personal loan calculator or compare offers with the loan comparison calculator.
How does a novated lease work?
A novated lease is an arrangement between you, your employer and a lease provider. You lease the car, and your employer agrees to make the lease payments, typically from your pay, and sometimes running costs such as fuel, tyres, insurance or servicing as well, depending on what you choose.
The structure usually involves a residual value at the end of the lease. At the end you may be able to pay the residual, trade the car in, refinance it or hand it back, depending on the contract.
Because your employer is involved, your job situation matters more than it does with a car loan. Your employer or its salary-packaging provider can explain how it works in practice.
Which is cheaper, a novated lease or a car loan?
It depends, and any claim that one is always cheaper should be treated with caution. The answer comes from the total of:
- the amount financed and the interest or lease charges
- the residual or balloon
- fees from the lender or provider
- running costs included or excluded
- tax effects for you, which a tax adviser can assess
A novated lease can look cheaper if you focus on the pre-tax deductions, but fees, the residual and what you give up if you leave a job also count. A car loan can look dearer on paper but be more flexible. The only reliable way to tell is to run both options on the same car and the same term.
What should a novated lease vs car loan calculator include?
If you are searching for a novated lease vs car loan calculator, check what the calculator actually models. A useful comparison has these inputs:
- the same car price, term and kilometres for both options
- the interest rate and comparison rate on the loan
- the lease provider’s fees and the residual
- running costs and whether they are bundled
- your tax position, which a tax adviser should confirm
- the end-of-term cost, including any balloon or residual
Many online novated lease calculators are published by leasing providers, so check which assumptions they use. NewGen can model the loan side with you, and you can try the numbers yourself with the car and personal loan calculator. The calculators hub lists the other tools.
What happens to a novated lease if I change jobs?
This is one of the biggest practical differences. With a car loan, nothing changes, because the loan is yours. With a novated lease, the arrangement depends on your employer.
Depending on the provider and contract, you may be able to:
- move the lease to your new employer, if they agree to novate
- pay out the lease or the remaining balance
- arrange a different way to keep paying while you are between jobs
Ask your provider these questions before signing: what happens if I resign or am made redundant, what fees apply, and how is any shortfall or surplus treated. If your income is likely to change, a car loan may be simpler.
Is there an electric car exemption for novated leases?
The ATO describes a fringe benefits tax exemption for eligible electric cars, and says electric cars can be provided to an employee under a novated lease (ATO, checked October 2026). Conditions apply, including the type of car, and the rules can change.
Please check current eligibility with the ATO or a tax adviser before you rely on it. NewGen doesn’t give tax advice.
Who should consider a car loan instead?
A car loan may suit you if you:
- are self-employed, a contractor or not eligible for salary packaging
- want to own the car and keep control of the contract
- expect to change jobs
- want to choose your own insurer, servicing and fuel arrangements
- want the option of no balloon
Our guide to self-employed car loans and the paperwork you need explains what lenders usually ask for.
How can NewGen help?
NewGen Finance Brokers arranges car loans. We can compare lenders, explain balloons and fees, and model the loan side so you can see the numbers next to a novated lease quote. We don’t give tax advice or arrange salary packaging, so for those questions speak to your employer’s provider and a tax adviser.
Read how to compare car loan rates for tips on reading a quote, or see our car loan options. Finance is subject to lender approval, and lending criteria, fees and charges apply. This article is general information and not personal or tax advice.