Buying a car outright is a financial ball and chain for some. Vehicle prices have climbed, interest rates are unpredictable, and running costs keep creeping up. A novated lease helps you get the car you want while keeping more money in your pocket.
Instead of paying for the car after tax, a novated lease lets you cover the car lease payments, fuel, servicing, and insurance from your pre-tax salary. That means lower taxable income and real savings.
But how much does it cost to lease a car in Australia? In this article, we try to analyse things so you can be sure you have an answer. At Vehicle Solutions Australia, we make the process clear from the start. We provide a straightforward leasing option that helps Australian employees drive newer, better cars with less financial strain.
What is a Car Lease and How Does a Novated Lease Work?
A car lease means you use a car for a set time without owning it outright. You make monthly repayments, and at the end of the lease, you can trade the vehicle in on a new one, sell it privately or pay a residual amount to keep it.
A novated lease works differently. Instead of paying from your own bank account after tax, your employer deducts the lease payments from your pre-tax salary before you even see it. That means:
- You pay less income tax
- Your car’s running costs (fuel, servicing, insurance) can be included
- You don’t pay GST on the purchase price of a new vehicle
Let’s say Sarah, a marketing manager in Adelaide, is looking at a new car. She could take out a car loan and make monthly repayments from her take home pay after paying tax. Sarah also needs to budget and pay for all of the other running costs such as fuel, tyres, servicing, registration and insurance renewals all in after tax pay.
Or, she could go with a novated lease. Her employer would take the payments straight from her pre-tax salary, and using the tax she saves to contribute to the lease and running costs. She also wouldn’t pay GST on the purchase price, and her fuel, servicing, tyres registration and comprehensive insurance are all included. NO MORE BUDGETING!
At the end of the lease term, she has options: trade it for a new vehicle, refinance, or pay the residual value and keep the car.
What’s in It for Employees?
A novated lease isn’t just about tax savings but about cash flow. Instead of being hit with lump-sum costs for servicing, registration, and insurance, everything is spread out in manageable, predictable payments.
What’s the Employer’s Role?
Your employer doesn’t actually pay for the car: they just facilitate the salary deductions. It’s a set-and-forget process for them, and they get to offer a great employee benefit without any extra business costs.
How Much Does It Cost to Lease a Car? Factors Affecting Novated Lease Costs
The cost varies from car to car. For instance, as of March 2025, you can get the Tesla Model Y above for a Novated lease from $204.85/week. You can find more options in our catalogue of vehicles in stock.
If you’re still wondering how much to lease a car with a novated lease? Again, the answer isn’t always one-size-fits-all.
Your monthly repayments depend on several key factors – just like choosing between a beachside Airbnb or a five-star hotel. Both get you a place to stay, but the costs involved vary based on features, location, and length of stay.
Let’s break it down.
1. The Car Price: The Starting Point
The purchase price of your car is the biggest piece of the puzzle.
A new vehicle like the Toyota RAV4 Hybrid will cost more than a used car, but it may have lower running costs and better fuel efficiency. If you go for electric vehicles, the electric car discount and lower servicing costs can make a big difference over time.
The rule of thumb is… choose a car that fits your lifestyle and budget.
2. Lease Term: The Longer, The Lower (But…)
A lease term works like a gym membership.
A short-term lease (say, 2 years) means higher monthly repayments but more flexibility when upgrading your next car. A longer lease term (4–5 years) spreads out costs, reducing your monthly lease payments, but you’ll be locked in for longer.
Finding the sweet spot depends on your personal circumstances.
3. Residual Value: What Happens at the End?
The Residual value is the estimate from the ATO’s on your car’s predicted value at the end of your agreed period.
Higher residual value = lower monthly repayments. Lower residual value = higher repayments. The ATO set a value for all cars but you have a magin of about 5 % higher or lower.
For example, if your leased car is worth $40,000 today and has a residual value of 40% after four years, you’ll need to pay $16,000 to own it at the end. Otherwise, you can trade it in for your next car or re-lease it for a further term.
4. Running Costs: More Than Just the Car
Your novated lease isn’t just about the car lease itself. It also covers your vehicle running costs.
Think about the fuel, comprehensive insurance, servicing, rego, tyres, and maintenance. These add up, but bundling them into your lease means fewer surprises.
For example, let’s say you drive a Mazda CX-5. If your running costs (fuel, insurance, servicing, tyres and registartion) add up to $5,000 a year, a novated lease spreads that into manageable regular payments, instead of lump-sum expenses.
5. Interest Rate: The Deal Breaker
A competitive interest rate is key to keeping your lease cost-effective.
Unlike a car loan, where you pay interest on the full purchase price, a novated lease lets you pay using pre-tax salary, reducing your income tax. The lower your interest, the better your overall savings.
Novated Lease vs Car Loan: Which One is More Cost-Effective?
With a novated lease, you’re spreading out costs, cutting tax, and keeping your cash flow steady. Instead of dipping into savings for a big service bill or unexpected repairs, everything is factored into your monthly repayments. Here’s a side-by-side breakdown:
| Factor | Novated Lease | Car Loan |
| Upfront Cost | No lump sum, just ongoing payments | Large deposit often required |
| Tax Savings | Uses pre-tax salary, reducing taxable income | No tax benefits |
| GST Savings | No GST on the purchase price. | GST included in car price |
| Running Costs | Bundled into lease (fuel, servicing, insurance) | Paid separately |
| Residual Payment | Optional balloon payment at lease end | Loan must be fully paid off |
| Flexibility | Upgrade to a new vehicle at end of lease | Own the car outright after full repayment |
| Interest Rate | Can be lower since payments come from pre-tax income | Higher due to personal borrowing |
| Cash Flow Impact | Easier to manage with all costs included | Large one-off expenses for maintenance and insurance |
Leasing an Electric Vehicle: The Tax-Free Advantage
Thinking of making the switch to an electric vehicle? A novated lease makes it easier and more affordable.
Thanks to the Australian Government’s 100% tax-free electric vehicle incentive, eligible EVs leased through a novated lease come with serious savings. You don’t pay income tax or GST on the purchase price, which can knock thousands off your total cost.
Take the Tesla Model Y. Buy it outright, and you’re looking at around $66,000. Lease it? With tax breaks and lower running costs (no petrol, fewer servicing expenses), you could save over $10,000 a year in income tax and GST, thats over $50,000 over a 5 year lease.
Use our EV novated lease calculator to compare costs against petrol cars. You might be surprised how much you save!
What Happens to a Leased Car at the End of a Novated Lease?
A novated lease isn’t forever. So, what happens when your lease term ends? Here are the options you’ve got:
1. Buy the Leased Car
Love your ride? Pay the residual value and keep it. This is the final amount due based on your agreed period—typically 30–50% of the original price.
2. Trade It for Your Next Car
Want something new? Trade in your leased car and roll into a fresh lease. Whether it’s a new vehicle or the latest EV, Vehicle Solutions Australia in partnership with Motorbuys, makes upgrading seamless.
3. Extend the Lease
If you’re not ready to give it up, extend your novated lease for a few more years and keep enjoying the tax benefits.
Using a Novated Lease Calculator to Find the Best Deal
A novated lease calculator helps you estimate monthly repayments, tax savings, and total costs before you commit. Simply enter details like car price, lease term, and estimated running costs to see how much you could save.
Try Vehicle Solutions Australia’s novated lease calculator and get a clear picture of your potential savings.
Frequently Asked Questions
How much does it cost to lease a car with a novated lease?
The cost of a novated lease depends on several factors, including the new car price, lease term, interest rate, and residual value. Your monthly payments also include running costs like fuel, insurance, and servicing. Use a novated lease calculator to calculate the exact amount based on your personal budget and circumstances.
Can I lease an electric vehicle through a novated lease?
Yes! The Australian Government offers a 100% tax-free electric vehicle incentive, making EVs much cheaper to lease than ICE vehicles. A novated lease removes GST from the purchase price and allows you to pay with pre-tax salary, reducing your income tax. This makes leasing an EV much more cost-effective than buying one outright.
What happens to a leased car at the end of the term?
When your novated lease ends, you have three options. You can buy the leased car by paying the residual value, trade it in for your next car, or extend your lease term. Vehicle Solutions Australia helps you transition smoothly, whether you’re keeping your vehicle or upgrading.
Is a novated lease better than a car loan?
A novated lease is often more cost-effective than a car loan because it includes tax benefits, lower running costs, and bundled expenses. With a car loan, you pay interest on the full amount, plus out-of-pocket fees for insurance, registration, and servicing. A novated lease spreads costs over time, helping you budget more efficiently.
How do I calculate my novated lease payments?
You can use a novated lease calculator to calculate your expected monthly payments, tax savings, and total vehicle costs. Simply enter details like car price, lease duration, and estimated running costs to get a tailored estimate. Check out Vehicle Solutions Australia’s website to use the calculator and find the best car lease option for you.
