Traditional vs. Novated Leasing: Understanding Your Car Financing Options

Times have certainly changed. In the past, reaching a certain level of financial stability often meant buying a house and a car. Today, however, owning a car is no longer the achievable milestone it once was for many Australians. Instead of purchasing, more people are choosing to lease their vehicles—especially with options like novated leasing making car access more affordable and flexible than ever.

However, within the world of car leasing, there are different options to consider. Many new car buyers still choose a traditional car loan, which allows them to repay the cost of the vehicle over a fixed period, typically ranging from 1 to 7 years. Currently, 19% of Australians have opted for this financing option.

As far as traditional car loans go, there are typically two types: secured and unsecured. 

• Secured Car Loans: These loans are offered to individuals or companies to directly purchase a vehicle, with the car itself acting as collateral. If the borrower fails to make repayments, the lender can seize and sell the car to recover the loan amount. Because the loan is backed by collateral, interest rates tend to be lower, making secured loans the most cost-effective option for many drivers.
• Unsecured Car Loans: Unlike secured loans, unsecured loans do not require collateral, meaning borrowers aren't at risk of losing their property. This offers greater flexibility and control over repayments. However, because these loans present a higher risk to lenders, they typically come with higher interest rates.

However, there’s another option that’s quickly gaining popularity as an alternative to traditional car loans. For employees who are attached to a company, a Novated Lease offers a way to drive the car of your dreams without breaking your budget. What’s more, you won’t need to put up the car as collateral or face higher interest rates.

A Novated Lease is a three-way agreement between you, your employer, and a novated lease provider of your choice. You agree to sacrifice a portion of your pre-tax salary to cover the car and maintenance payments, and your employer handles the payments on your behalf.

As more people discover the benefits of Novated Leases, their popularity is rapidly growing. In fact, in 2022, 5% of Australia’s new car market was financed through Novated Leases.

Here’s why more Australian drivers are opting for a Novated Lease over traditional car financing:

• Maximise Tax Savings: Car payments are deducted from your pre-tax salary, lowering your taxable income and helping you save on taxes.
• Minimise Paperwork: Your employer handles a single, consolidated payment covering the car, maintenance, and running costs—no need to track multiple expenses.
• Increased Flexibility: With lower upfront costs than traditional loans, a Novated Lease allows you to lease a car without worrying about liquidity.
• No GST: You’re not required to pay GST, as it’s already covered by your financing institution, which claims an input tax credit.
• Personal Use: Unlike other leases, a Novated Lease lets you use the car for personal purposes—whether commuting or weekend getaways.
• Reduced Risk of Default: Payments are made directly from your employer, reducing the risk of default and making it more secure for lenders.
• Less Hassle for Employers: Employers don’t have to manage a fleet of cars; when an employee leaves, they take the car and lease obligations with them.
• Flexibility After the Lease: At the end of the lease, you can buy the car, refinance the residual value, or start a new Novated Lease with a different vehicle.

How is Carbar’s Novated Lease Different?

As you explore your Novated Lease options, you might be wondering what makes carbar stand out from the rest. Let us take a moment to show you what we have to offer.

carbar’s Novated Lease combines all the savings and flexibility you’d expect with added convenience. Our offering is available to companies of all sizes, including small businesses with fewer than 20 employees—so even if you work for a small business, you can still drive with us.

We understand that every driver is different, which is why we offer a fully customisable service to fit your unique needs. Whether it’s the car, the lease terms, or the payment structure, we tailor our solutions to ensure you get exactly what you need.

We also offer a Novated Lease calculator to help you estimate your payments and savings, allowing you to get a rough idea of what to expect. But if you’d prefer more personalised advice, we're happy to provide one-on-one guidance. Simply register your interest, and a real person will walk you through the details.

Still gathering information? All the data you need is right here.

Ready to drive smarter or just have more questions? Call 1-300-620-684 or email us today!