Loan or Lease? A True Comparison

Many of our clients want to compare the differences between a normal car loan or attached to a home loan with and a novated lease. We hope this article assists in this comparison. If you have any questions regarding this comparison please feel free to call us on 1300 990 880.

In this article we will examine in detail the exact cost of a vehicle salary packaged and paid completely in after tax dollars in the following conditions;

  1. Vehicle cost $35,000 including GST and on road costs of Registration and Stamp Duty.
  2.  The vehicle is an average SUV that uses 10 litres per 100 kms.
  3. Has capped price servicing of $250 per 10,000 kms service.
  4. The employee’s salary is $75,000 gross per annum.
  5. The lease and loan are over a 5 years period.
  6. The lease has a residual value of 28% of the vehicle value.
  7. The lease is 2 months in arrears to allow enough time for the employer to establish the salary deduction.
  8. The loan comparison is based on a car loan of 5.50% fixed for the term of the loan with zero residual payment/balloon.
  9. The running costs of fuel, services, tyres, registration and insurance are identical in both sides of the comparison.
  10. The FBT is fully paid in after-tax deductions within the calculations.

Comparison Figures

Consumer Loan – $35,000 over 5 years at a fixed rate of 5.5% with no balloon payment and no establishment fee or monthly account fees.

Novated Lease – $35,000 over 5 years with a residual value of $9,800 Inc GST), with a $150 Establishment fee and financing the first years comprehensive insurance premium.

Consumer Loan                                                               Novated Lease

Weekly Payments                                                            Weekly Payments

Loan Payment – $157                                                              Lease Payment – $138

Fuel Payment – $45                                                                 Fuel Payment – $45

Insurance – $15.50                                                                   Insurance – $15.50

Registration – $15.50                                                              Registration – $15.50

Schedules Servicing – $6.50                                                  Schedules Servicing – $6.50

Tyres – $3.50                                                                            Tyres – $3.50

Management Fee – $0.00                                                      Management Fee – $3.50

Income Tax and GST Tax Savings – $0.00                        Income Tax and GST Tax Savings – $38.00

Total Cost Per Week – $243.00                                                     Total Cost Per Week – $189.50

What is The Difference In Payments

The difference in the weekly payments are $53.50 this makes a difference of $2,782 each year and $13,910 over the 5 year finance term.

Even if we subtract the residual value of $9,800 off the $13,910 difference, the employee on the Novated lease is still $4,110 better off.

Let’s bust some myths and provide the facts.

The residual value of a lease.

One of the biggest misconceptions of a novated lease is the residual value at the end of the lease. Many people see the residual value as a worry. The facts about the residual are as follows;

  1. Residual Values or Balloon Payments make the weekly payments of a vehicle more affordable. (Refer to the weekly finance payments of both comparisons.)
  2. You have many options at the end of the lease.
    1. Pay it out and own the vehicle.
    2. Trade the vehicle in or sell the vehicle privately. If the vehicle fetches more than the residual value the difference is yours to keep, tax free.
    3. Re-lease or re-finance the residual value over a further term.
  3. Many people who enter into a Novated lease enjoy the convenience and freedom from big vehicle bills and enjoy driving a new vehicle every three to five years at a more affordable cost than paying for all the running costs in after tax dollars.


One of the biggest benefits of a novated lease aside from the income tax and GST savings is the convenience that all of the vehicle expenses are paid from salary deductions before tax.

If you would like to compare your loan repayments to a novated lease go to our Novated lease calculator or call us on 1300 990 880.

If you haven’t found your new car yet but know what you want try our online new car buying site Motorbuys is designed so that you can choose the exact car in a few simple clicks. Motorbuys is the only site that allows you to choose the exact colour and accessories so that dealers can provide an accurate quote, so you can make a more informed decision.

To obtain a pre-approval on your lease click HERE