Two of the most common ways Australians finance a new car are a standard car loan and a novated lease. They work very differently, suit different circumstances, and in 2026 the gap between them has widened significantly for employees buying electric vehicles — thanks to the FBT exemption.
This guide explains how each option works, who benefits most from each, and gives you the key numbers to make an informed decision. We're not pushing either option — the right choice depends entirely on your situation.
Important: Tax rules change. The figures and policy details in this guide reflect the position as at May 2026. Always confirm current rules with a qualified financial adviser or accountant before making a decision — particularly around FBT, as the rules are changing in 2027 and 2029.
How a Car Loan Works
A car loan (also called a personal loan or secured car loan) is the straightforward option: a lender provides you with funds to purchase the car, you own the vehicle outright, and you repay the loan over an agreed period (typically 3–7 years) with interest.
Key features of a car loan:
- You own the car immediately — it's your asset
- No employer involvement required
- Available to employees, self-employed, and private buyers
- Fixed or variable interest rate options
- Repayments made from after-tax income
- No FBT implications
- No salary packaging arrangement needed
Car loans are simple, transparent and available to anyone. They're the default choice for most private buyers and the right option if your employer doesn't offer salary packaging.
How a Novated Lease Works
A novated lease is a three-way arrangement between you, your employer, and a finance/leasing company. Your employer agrees to make lease payments on your behalf from your pre-tax salary — reducing your taxable income and therefore your income tax.
How the arrangement works in practice:
- You choose a vehicle
- A novated lease company (such as RemServ, SG Fleet, or others) structures the lease
- Your employer deducts repayments from your gross salary before PAYG tax is calculated
- Running costs (fuel or charging, servicing, registration, insurance) can also be included in the pre-tax deduction — creating a "fully maintained" package
- At the end of the lease term (typically 3–5 years), you can buy out the residual value, refinance, or return the car
Eligibility requirement: You must be an employee whose employer participates in a salary packaging program. This is common in government, health, education and large private sector organisations. If your employer doesn't offer it, a novated lease is not available to you.
Fringe Benefits Tax — The Critical Variable
Normally, a novated lease creates a Fringe Benefit — the employer is providing a car benefit which the ATO taxes accordingly. The Fringe Benefits Tax (FBT) is currently calculated at 47% and is paid by the employer (though often passed back to the employee through the lease arrangement).
However, for battery electric vehicles (BEVs) — pure electric, not hybrid or plug-in hybrid — the rules are different and more favourable.
Current FBT Exemption for BEVs (2025-26)
BEVs priced below the luxury car tax (LCT) threshold — which is $91,387 for fuel-efficient vehicles in 2025-26 — are fully exempt from FBT when provided through a novated lease. This means the entire lease arrangement for a qualifying EV incurs no FBT, dramatically improving the financial benefit.
PHEV exemption ended: The FBT exemption for plug-in hybrid electric vehicles (PHEVs) ended on 1 April 2025. Only battery electric vehicles (BEVs) retain the exemption from that date.
Upcoming FBT changes — plan ahead
The FBT exemption for EVs is subject to future changes that you should factor into your planning:
| Period | EV Price Range | FBT Treatment |
|---|---|---|
| Now – April 2027 | Under LCT threshold ($91,387) | Full FBT exemption |
| April 2027 – April 2029 | Under $75,000 | Full FBT exemption |
| April 2027 – April 2029 | $75,000 to LCT threshold | 75% of normal FBT rate |
| From April 2029 | All qualifying EVs | 75% of normal FBT rate |
If you're considering a novated lease on an EV, locking in before April 2027 ensures you benefit from the full exemption for the duration of your lease term.
The Numbers: How Much Can You Save?
According to Money.com.au analysis, the saving from a novated lease versus a standard car loan is approximately:
- EV novated lease vs car loan: ~25.7% saving — largely driven by the FBT exemption
- Non-EV novated lease vs car loan: ~4.5% saving — from the pre-tax salary deduction benefit alone
For a $50,000 EV purchased over 5 years:
- Car loan total cost (including interest): approximately $60,000–$65,000 (post-tax dollars)
- Novated lease with FBT exemption: approximately $45,000–$48,000 (effective cost after tax savings)
- Potential saving: $12,000–$17,000 over the term
The actual saving varies with your marginal tax rate — the higher your income, the greater the benefit from pre-tax salary packaging. The calculation also depends on the residual value, running costs included, and other lease-specific factors. Use a novated lease calculator from providers like SG Fleet or RemServ to model your specific situation.
Novated Lease vs Car Loan: Side by Side
✅ Novated Lease
- Payments from pre-tax salary — reduces taxable income
- FBT exemption for EVs = large additional saving
- Running costs can be bundled pre-tax (fuel/charging, rego, insurance, servicing)
- Fleet-type pricing often available through the lease provider
- Simple monthly deduction — no separate bill management
- Requires employer participation in salary packaging
- More complex to understand and set up
- You don't own the car during the lease (it's the leasing company's asset)
- Complications if you change jobs
- FBT rules can change (see 2027/2029 changes above)
💳 Car Loan
- You own the car outright from day one
- Available to anyone — no employer involvement
- Simpler to understand and arrange
- No complications if you change jobs
- Can use any lender — compare rates freely
- Repayments from after-tax income — no salary packaging benefit
- No FBT exemption benefit (not applicable)
- Running costs paid separately, after tax
- Higher effective cost vs novated lease for employees (particularly for EVs)
Who Is Each Option Best For?
Novated lease suits you if:
- You're an employee whose employer offers salary packaging
- You're buying an EV under the LCT threshold (maximum benefit from FBT exemption)
- You're in a higher income tax bracket (32.5% or 37% marginal rate) — more pre-tax benefit
- You want a fully managed "all in" car cost
- You plan to keep the arrangement for at least 3 years
Car loan suits you if:
- Your employer doesn't offer salary packaging
- You're self-employed (consider a chattel mortgage instead)
- You value simplicity and outright ownership above tax optimisation
- You're uncertain about job stability
- You're buying a vehicle that doesn't benefit significantly from novated leasing (e.g. petrol car with limited FBT advantage)
Other Finance Options Worth Knowing
Chattel Mortgage (for business use)
If you use the vehicle primarily for business purposes and you're registered for GST, a chattel mortgage allows you to claim the GST on the purchase price, depreciation and interest. This is the preferred option for sole traders and small businesses. It's separate from a novated lease — there is no employer or salary packaging involved.
Operating Lease / Fleet Lease
For businesses purchasing multiple vehicles, an operating lease (where the vehicle stays on the leasing company's balance sheet) can offer different accounting and tax treatment. BuyFleet works with commercial fleet buyers across this structure regularly.