Car Financing Explained
A clear comparison of vehicle finance options available to Australian drivers — personal loans, novated leases, chattel mortgages, and outright purchase.
Finance Options Overview
| Option | Best For | Tax Benefit | Ownership |
|---|---|---|---|
| Outright purchase | No ongoing payments, full control | None | Immediate |
| Secured car loan | Private buyers, simple structure | None (personal use) | Immediate |
| Novated lease | Employees with packaging access | Pre-tax salary sacrifice | At lease end (residual) |
| Chattel mortgage | Business / ABN holders | GST input credits, depreciation | Immediate |
| Operating lease | Business fleet, no residual risk | Business deductions | Never — return vehicle |
Total Cost of Ownership Model
When comparing finance options, calculate the total cost of ownership (TCO) over your planned holding period — not just the monthly payment.
TCO includes: purchase price (or total lease payments + residual), interest/finance charges, registration, insurance, fuel, servicing, tyres, depreciation, and opportunity cost of capital.
Five-Year TCO Example — $40,000 Vehicle
| Cost Component | 5-Year Total |
|---|---|
| Depreciation (45% over 5 years) | $18,000 |
| Finance interest (6.5% over 5 years) | $4,200 |
| Insurance | $8,500 |
| Registration | $4,000 |
| Fuel (15,000 km/yr @ $1.90/L, 8L/100km) | $11,400 |
| Servicing & tyres | $6,500 |
| Total 5-Year Cost | $52,600 |
This means a $40,000 vehicle typically costs $52,600+ over five years before any tax benefits — or roughly $10,500 per year.
Novated Lease vs Car Loan
The key difference: a novated lease uses pre-tax salary, potentially reducing your income tax. A car loan uses post-tax income. However, novated leases include management fees and potential FBT costs that car loans do not.
Use our lease calculator to model your specific scenario, or read the full novated leasing guide.
Comparison Rate Disclosure
Always compare the comparison rate (not just the advertised rate) when evaluating car loans. Comparison rates include most fees and charges, giving a more accurate picture of total borrowing cost.