Novated lease or buy outright? Here’s which actually costs less

A novated lease can save you thousands or almost nothing, and the car you pick decides which. Money.com.au’s five-year comparison found $17,347 of savings on an electric SUV and $3,377 on a petrol one. The gap is tax, not finance.

Does a novated lease actually cost less than buying?

Sometimes, and how much depends almost entirely on whether the car is electric. A novated lease is a three-way arrangement in which your employer pays the car’s finance and running costs out of your salary before tax is calculated, which lowers your taxable income. On an electric car that qualifies for the fringe benefits tax exemption, nearly the whole payment can come out pre-tax. On a petrol car, most of it cannot.

Money.com.au modelled both. Over five years, a BYD Sealion 7 Premium cost $67,373 on a novated lease against $84,720 funded with a car loan, a saving of $17,347 or 25.7 per cent. A petrol 2025 Mitsubishi Outlander came to $75,584 on the lease and $78,960 on the loan, a difference of just $3,377, or 4.5 per cent.

Vehicle	Novated lease, 5yr	Car loan, 5yr	Saving	Saving %
BYD Sealion 7 Premium (electric)	$67,373	$84,720	$17,347	25.7%
2025 Mitsubishi Outlander (petrol)	$75,584	$78,960	$3,377	4.5%

Tax explains the whole gap. Money.com.au calculated $37,042 of tax savings over five years on the electric example, against $17,777 on the petrol one. Same term, same structure, and the electric car returned more than five times the net saving.

What fees and interest does a novated lease add?

A novated lease adds finance interest, a one-off establishment fee and an annual management fee, and all three come out of the tax saving before you ever see it.

Start with the rate. Money.com.au reports novated lease interest typically starting from 7.00 per cent per annum, while car loan rates run from 5.50 per cent to 20 per cent depending on your credit profile. Novated Lease Guide puts the effective rate built into lease finance higher again, often 8 to 12 per cent or more once the structure is unpicked.

Then the fees. Maxxia’s calculator builds in a finance establishment fee of $475.00 including GST on the amount financed, plus an indicative vehicle management service fee of $200.00 including GST a year, which it says varies by employer. Against that sits a genuine win, the GST you avoid on the purchase price, which Money.com.au notes is capped at $6,353 for the 2026-27 financial year.

The residual is the part people miss. That’s the lump sum owed at the end of the term before the car is yours, and Maxxia sets it at 28.13 per cent of the vehicle cost on a five-year lease in line with ATO guidelines. In the Money.com.au examples that meant $15,433 on the electric car and $12,704 on the Outlander, payable in one hit.

One warning worth holding onto. Novated Lease Guide points out that most lease quotes compare the lease against funding the identical car with the identical high-interest finance paid from post-tax income, rather than against a cash purchase or a sharply priced car loan. Ask for the cash-purchase column.

How long will the electric car FBT exemption last?

The full exemption holds in its current form until 1 April 2027, then narrows once more before ending on 1 April 2029, Zecar reports. Fringe benefits tax is what an employer pays on non-cash benefits given to staff, and removing it is the single reason an electric novated lease beats a petrol one by so much.

Eligibility is capped by price. Maxxia applies the exemption below the fuel-efficient luxury car tax threshold of $91,661, up from $91,387 in 2025-26, according to Novated Lease Guide. Zecar reports plug-in hybrids lost the exemption from 1 April 2025, other than arrangements entered into before that date.

The narrowing happens in two steps. From 1 April 2027, only electric cars under $75,000 keep the full exemption, and dearer eligible cars drop to a 25 per cent FBT discount. From 1 April 2029 every eligible electric car gets the 25 per cent discount instead, Zecar reports. Leases signed before each transition date keep their original treatment, which makes timing worth money.

The government’s own estimate, cited by Zecar, is a saving of up to $4,700 a year for an individual and up to $9,000 a year for an employer on a car costing about $50,000.

What can go wrong with a novated lease?

The costs that catch people out sit outside the lease itself, in your borrowing power, your superannuation and your job security.

Novated Lease Guide gives an example in which leasing a $70,000 car cuts home loan borrowing power by $200,000 or more, because lenders count the lease as an ongoing liability. It also warns that an employee can lose $1,000 a year or more in employer super contributions if payroll calculates the superannuation guarantee on the reduced post-packaging salary. Check that one with your payroll team before you sign, not after.

The rest of the risk list from the same guide is short and blunt.

• Resigning or losing your job ends the salary packaging immediately, and early termination costs money.
• An insurance payout after a write-off can fall short of what you still owe.
• The contracted residual can end up higher than what the car is actually worth.
• Reportable fringe benefits flow into the income tests for HECS-HELP repayments, childcare subsidy and Division 293 tax.

So which one should you choose?

Lease if you’re packaging an electric car under the threshold and you expect to stay in the job for the term, and buy outright otherwise. That’s the honest summary of the numbers above.

Best for a salaried employee on a high marginal tax rate, taking a new electric car priced under the fuel-efficient threshold, with stable work and no home loan application coming. On those numbers the exemption does the heavy lifting and comfortably outruns the fees.

Not for someone funding a petrol or diesel car they could otherwise buy with cash. A 4.5 per cent saving on a five-year commitment, as Money.com.au measured on the Outlander, is thin compensation for locking your finances to your employer and adding a residual you’ll have to fund later.

Whichever way you lean, get two quotes on the same car and make sure one of them prices the cash purchase or a plain car loan. Lease terms run one to five years while car loans stretch to seven, so compare over the same period or the comparison means nothing.