Can I own the car after a novated lease?

Yes. At the end of your novated lease term you have 2 options: start a new lease with a new vehicle or pay a residual balance to take ownership of the vehicle. There are a few considerations to bear in mind though when deciding whether or not to buy the car, including the tax implications. You'll have to start paying running costs out of your take-home pay and won't benefit from tax savings, all while your vehicle depreciates in value. See our full guide on this here.

How will my credit score be affected with a novated lease or car loan?

With both a novated lease and a car loan you are borrowing money. This means the finance providers will perform a credit check to assess your credit worthiness. This may affect your credit score briefly, but as you make repayments on time the score should correct and may even increase. Having this credit on your file may affect your borrowing power if you're intending to take out another form of credit, including a home loan.

Is novated leasing only for new cars?

No, novated leasing is an option for used cars as well. The car must not be over a certain age by the time the lease is scheduled to end and it must meet other vehicle specifications. Every novated leasing provider will have different criteria around leasing a used car so it's important to check. When you are buying a car you have much more flexibility in the type and age of the vehicle.

Novated lease vs buying outright

If you want to own a car, you can either choose to buy outright with cash or a loan or you can choose to lease.
Novated leasing is often considered the most cost-effective option to owning a car because of the tax benefits.
Buying a car outright means you don't have to worry about restrictions on your ownership, such as not being able to make modifications.

What is a novated lease?

A novated lease is a salary sacrificing arrangement where the employee makes payments from their salary to pay for a car.

Those payments come from the employee's pre-tax salary which reduces their taxable income.

The lease will be for between 1 and 5 years, with the option of a final residual repayment to buy the car or to begin a new lease with a new vehicle.

What does it mean to 'buy outright'?

Although you may very well have enough cash savings to pay for the car upfront, by
buying outright we also mean using a car loan to pay for the car in full and then repay the loan.

Buying outright pros and cons

Pros

You'll own the car outright as soon as you buy it.
You may have more flexibility over your finance provider.
You can choose to have more flexibility over your loan repayments by choosing one with extra repayments.
Your take-home salary remains the same.

Cons

You may need to pay a large upfront cost.
If you want to change your vehicle you'll need to consider that the value has depreciated and you may need another loan.
Buying outright doesn't come with the tax benefits of a novated lease.

Novated leasing pros and cons

Pros

Repayments from pre-tax income mean you reduce your taxable income.
Your repayments are handled automatically by your employer.
Although you're tied to the vehicle for the lease period, you have the option to start a new lease with a new vehicle at the end of the lease.

Cons

You don't own the vehicle until you choose to pay the residual value at the end of the lease.
Because you don't own the car you're unable to make modifications to it.
The cost of Fringe Benefits Tax (FBT) is often passed on to the employee.

What's the difference between a non-maintained lease and a fully maintained lease?

When you take out a novated lease you can choose between a
non-maintained novated lease or a fully maintained novated lease. A fully maintained novated lease means maintenance, insurance and running costs are included in the repayment. A non-maintained novated lease only includes payments towards the car itself.

When is a novated lease worth it?

A novated lease suits someone who:

Is in a stable full-time job
Needs a car for personal use
Is considering an electric vehicle
Wants the lease repayments and running costs included in the same payment

If you're planning to buy a vehicle for yourself anyway, a novated lease might be the best solution if you're employed with a salary. Because the repayments come out of your salary before you're taxed, the repayments actually cost you less than if you were to use your take-home salary for loan repayments.

Let's take a look:

Non-maintained – just the car finance.

Jodie is on an annual salary of $100,000, which equals a monthly pre-tax income of $8,333.33.

She chooses a $40,000 electric vehicle on a 5-year novated lease with monthly deductions of $576.23. This reduces her taxable income to $7757.10 per month.

As a result, her take-home pay falls from $6,431.33 to $6036.77 per month. This means the $576.23 repayment only impacts her net income by $394.23 due to tax savings.

At the end of the lease, she can pay a $11,252 residual to own the car. Factoring in all costs and tax savings, the total effective cost to her is $34905.80 for the vehicle.

Fully maintained – car finance, comprehensive insurance, registration, servicing, tyres, charging.

She chooses a $40,000 electric vehicle on a 5-year fully maintained novated lease covering up to $3600.00 of vehicle running costs each year. Her monthly deductions would change to $855.85.

This reduces her taxable income to $7477.50 per month.

As a result, her take-home pay falls from $6,431.33 to $5,848.17 per month. This means the $855.85 repayment only impacts her net income by $582.83 due to tax savings.

At the end of the lease, she can pay a $11,252 residual to own the car. Factoring in all costs and tax savings, the total effective cost to her is $46329.40 with $18000.00 extra value added over the term.

Expert insight: Novated leasing helps you use cash strategically

"If you're purchasing an electric vehicle that qualifies for the FBT exemption - or you work for an FBT-exempt organisation - a novated lease is often significantly cheaper than paying cash. Even outside of that, it's worth looking at the lease in the context of your broader financial goals. Buying a car outright ties up tens of thousands of dollars that could otherwise be invested, offset against a mortgage, or used more strategically. A novated lease preserves your capital while potentially delivering strong tax savings - it's not just about the car, it's about your overall financial position."

Catherine Heyes

Chief operating officer, Fincar

When is buying a car outright worth it?

Buying a car outright is the better option if:

You're self-employed or freelance
You're planning to switch jobs or retire soon
You would want to sell the vehicle in a few years
You want full control to modify the vehicle
You have enough cash spare to buy outright without a loan
You have enough cash spare to put down a large deposit and keep your interest repayments small

If you can buy a car with cash, assuming you won't put yourself in any financial difficulty by doing so, that avoids the additional charges of interest and fees.

Otherwise, buying a car with a loan can give you more flexibility with your repayments and what you do with your vehicle.

Because novated leasing is only for salaried employees, taking out a loan to buy a car may be the best option for self-employed or freelance workers, or if your employer doesn't offer novated leasing as an option.

Using a car loan to buy a car outright.
If Jodie chose to buy that same car with a 5-year loan instead with a 7% interest rate, her monthly repayments would be $793 a month. The total cost of the loan would be $47,523. But unlike the novated lease, Jodie would have to pay additional running and maintenance costs from her post-tax income.

What are the tax perks?

Income tax: Because novated lease repayments come out of your pre-tax salary, you'll save money on income tax.
GST: You don't pay GST on the cost of the vehicle or any associated running costs.
Fringe benefits tax: If you lease a battery electric or hydrogen fuel cell car that's under the luxury car tax threshold for fuel-efficient vehicles (so no luxury car tax was payable on it), you won't have to pay fringe benefits tax. Plug-in hybrids no longer qualify, unless the lease was already in place and exempt before 1 April 2025.

Frequently asked questions about buying vs novated leasing

Yes. At the end of your novated lease term you have 2 options: start a new lease with a new vehicle or pay a residual balance to take ownership of the vehicle.
There are a few considerations to bear in mind though when deciding whether or not to buy the car, including the tax implications. You'll have to start paying running costs out of your take-home pay and won't benefit from tax savings, all while your vehicle depreciates in value.

See our full guide on this here.
With both a novated lease and a car loan you are borrowing money. This means the finance providers will perform a credit check to assess your credit worthiness. This may affect your credit score briefly, but as you make repayments on time the score should correct and may even increase.
Having this credit on your file may affect your borrowing power if you're intending to take out another form of credit, including a home loan.
No, novated leasing is an option for used cars as well. The car must not be over a certain age by the time the lease is scheduled to end and it must meet other vehicle specifications.
Every novated leasing provider will have different criteria around leasing a used car so it's important to check.
When you are buying a car you have much more flexibility in the type and age of the vehicle.

Finder writers are subject matter experts and use primary sources, in-depth research and interviews with other experts to ensure you're getting accurate, up-to-date information. Articles are fact checked in line with our editorial guidelines.

Thank you for your feedback!

Written by

Rebecca Pike

Editor, Money

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Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

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Rebecca has written 253 Finder guides across topics including:

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Novated leasing vs buying outright

Both options get you a car, so which is the better solution for you?