When it comes to financing a car, employees are often faced with two common options: a Novated Lease or a traditional car loan. While both can help you get on the road, the way they work and the benefits they offer can be very different.
At Paywise, we regularly help employees understand their Salary Packaging options, including Novated Leasing.
So, how does a Novated Lease really compare to a traditional car loan? Let’s break it down.
What is a Traditional Car Loan?
A traditional car loan is a finance agreement between you and a lender, such as a bank or finance company. You borrow money to purchase a vehicle and repay it over a set term, plus interest.
With a car loan:
- Payments are made from your after-tax income.
- You pay for fuel, servicing, insurance and registration separately.
- You own the car outright once the loan is paid off.
Car loans are familiar and simple, which can make them a popular choice, but they don’t offer any tax advantages.
What is a Novated Lease?
A Novated Lease is a Salary Packaging arrangement between:
- You, the employee.
- Your employer.
- A Novated Lease provider, such as Paywise.
Your employer agrees to make vehicle-related payments on your behalf, which are deducted from your salary. These payments are split between pre-tax and post-tax income, or entirely from pre-tax salary for eligible electric vehicles, which can reduce your taxable salary.
With a Paywise Novated Lease, you can bundle:
- Vehicle finance repayments
- Fuel or charging
- Servicing and maintenance
- Comprehensive insurance
- Registration
- Tyres
…all into one regular, manageable payment that comes out of your salary before it hits your bank account.
Novated Lease vs Traditional Car Loan: What’s the Difference?
1. Tax Benefits
Traditional Car Loan
- Paid entirely from after-tax income.
- No tax advantages.
Novated Lease via Paywise
- Vehicle and running costs can be paid partly from pre-tax income.
- Reduces your taxable salary.
- Eligible Electric Vehicles may be FBT-exempt.
For eligible employees, this tax-effective structure is one of the biggest advantages of Novated Leasing.
2. Budgeting and Running Costs
Car Loan
- Ongoing costs can vary month to month.
- Expenses like servicing or repairs are paid separately.
Novated Lease
- Finance and running costs are bundled into one regular payment.
- Easier budgeting and fewer surprises.
- Paywise helps manage these costs for you.
This all-in-one approach can make day-to-day vehicle costs much easier to manage.
3. Upfront Costs
Car Loan
- Often requires a deposit.
Novated Lease
- Usually minimal or no upfront costs.
- Potential GST savings on vehicle purchase and expenses.
These savings can make a noticeable difference over the life of the lease.
4. End-Of-Term Flexibility
Car Loan
- You own the vehicle once the loan is repaid.
Novated Lease
- A residual value applies at the end of the lease term.
- You can choose to pay out the residual value and keep the car.
- You can refinance the lease and continue to enjoy the benefits of a Novated Lease.
- You can upgrade to a new vehicle, often for little or no extra cost.
Paywise helps employees understand these options well in advance so there are no surprises.
How Paywise Can Help
At Paywise, we specialise in helping employees make informed decisions about Salary Packaging and Novated Leasing. Our team works with you to:
- Compare Novated Leasing with other finance options.
- Understand potential tax savings.
- Choose a vehicle that suits your lifestyle and budget.
- Manage ongoing vehicle costs with confidence.
Want to compare your options properly? The team at Paywise can help explain how each one affects your take-home pay and help you decide what works best for your situation.
Visit our Novated Leasing page for more information, call us on 1300 132 532 or email cars@paywise.com.au.