Novated Lease Pros and Cons in 2025

Novated leasing has become one of the most talked-about ways to finance a car in Australia. 

With tax benefits, running costs sorted and even special incentives for electric vehicles, it’s no surprise more drivers are looking into it.

But a novated lease isn’t always the right fit. Alongside the savings and convenience, there are aspects to think about before diving straight in. 

In this guide, we break down the pros and cons of a novated lease, and share tips to help you decide if salary packaging a car makes sense for you.

Pros and cons of a novated lease (quick snapshot)

Novated lease benefits

1. Lets you lease a new or used car for personal or work use

A novated lease lets you choose either a brand-new or a used car, depending on your budget and preferences. You’re not limited to one type of vehicle, so you can pick something that fits your lifestyle, whether it’s a nimble hatchback, a spacious SUV, or a rugged ute.

Once your car is leased, you can drive it for personal use, work purposes, or both. Contrary to common misconceptions, salary packaging doesn’t restrict the vehicle to business use only – it can be used entirely for personal driving if you prefer.

This flexibility makes a novated lease a practical option for almost any driver, letting you enjoy the car you want while using it in a way that suits your everyday life.

2. You pay for your car and running costs out of pre-tax income

Under a fully-maintained novated lease, car repayments and running costs are automatically deducted from your pre-tax salary by your employer. 

Fuel or EV charging, registration, insurance, and servicing are all combined into a single, easy-to-manage payment, helping you avoid the unexpected costs that come with car ownership.

This setup reduces your taxable income and can deliver substantial tax savings (often thousands of dollars), depending on your salary and lease repayment amount.

3. Saves you GST on the purchase price and many ongoing expenses

You won’t pay GST on the purchase price of your car or on many upfront extras, like roof racks, window tinting and car seat protection.

For the 2025/26 financial year, this can add up to $6,334 in savings (ATO capped limit). Just remember, this benefit only applies to new or demo cars bought through a dealership. Used cars purchased privately don’t usually qualify for GST savings.

On top of that, any running costs included in your lease, such as fuel, servicing or insurance, are also GST-free, helping you keep more money in your pocket.

4. Exclusive FBT exemption makes EVs far cheaper under a novated lease

With a novated lease, eligible electric vehicles (EVs) don’t attract Fringe Benefits Tax (FBT), making them much more affordable. The EV FBT exemption applies to battery-electric cars priced below the luxury car tax ($91,387 for 2025/26) threshold and can save thousands compared with conventional vehicles.

Because of this, driving an EV through a novated lease often costs less than a petrol or diesel car after factoring in both lease payments and running costs.

It’s one of the main reasons more Australians are combining salary packaging with electric vehicles, taking advantage of the extra savings while upgrading to a car that never needs to refill at the bowser.

5. If you move jobs, the lease can be transferred to your new employer

Life moves fast, and changing jobs or career paths is always a possibility. If you do move, a novated lease can often be transferred to your new employer, keeping your arrangement and payments intact.

You’ll just need your new employer’s agreement to take over the lease, but many are familiar with the process and can make the shift without hassle.

This flexibility means you’re not locked into a job until your lease ends (more on changing jobs and your options below). ‍

6. Includes fuel, registration and servicing into one streamlined payment

Convenience is key in today’s busy world, and salary packaging a car really shines here.

All your running costs, including fuel or EV charging, registration and CTP, servicing, insurance and replacement tyres, are bundled into a single, streamlined payment. For non-EV vehicles, you will often also receive a fuel card to use at participating petrol stations. 

This makes budgeting a breeze because you know exactly what is included in your novated lease. Just keep in mind that other costs, like tolls, fines or modifications, are usually not covered and remain your responsibility. 

7. Often gives you access to fleet discounts and deals on a range of cars

Leasing through a novated arrangement often gives you access to fleet discounts and special deals that aren’t available to the general public. This means you can get a better price on the car, helping you save even more.

For example, popular models like the Tesla Model Y or Mitsubishi Outlander PHEV are frequently included in these offers, making it easier to drive a well-equipped, reliable car at a lower cost.

These discounts can add up over the life of your lease and are the cherry on top of an already appealing deal.

8. Flexible end of lease options to suit your next move

You get more choice at the end of the lease term compared to a traditional car loan. You can decide what works best for you, whether that’s keeping the car, upgrading or starting fresh.

You can pay the residual and own the car outright, giving you full ownership once the lease ends. Alternatively, you can extend the lease with the same vehicle or trade it in for a new car.

If you choose to sell or trade in the car, the sale price goes toward the residual. Any profit above the residual is yours to keep, tax-free. 

9. An easy way to upgrade your car more often

Upgrading your car is simple and stress-free compared with buying outright. At the end of the lease term, you can trade in your current vehicle and start a new lease on a different model, letting you enjoy the latest features and technology without the hassle of selling your old car.

This works well for drivers who like to keep their car fresh, whether moving to a newer model, switching to an EV, or choosing a vehicle that better suits changing lifestyle needs.

Planning upgrades through your lease keeps you in a well-maintained, reliable car while avoiding the stress and unpredictability of private sales.

Quick pitstop:

At Novatedleases.com, we can calculate the cost of your desired car and its running costs. Our experts can help you compare your options and check the savings to see if it’s right for you.

Novated lease disadvantages

1. You might be locked into your employer’s pool of chosen lease providers

Some employers only work with certain lease providers, which can limit your choice. This means you might miss out on comparing deals, fees or customer service across the market.

We like to think we’re pretty ace, but if your workplace isn’t set up with us, we can’t help you find your best offer. What we can do is give you the tools and knowledge so you know what to ask and what to look for, wherever you go.

2. You technically don’t own the car until you pay the residual at the end of the lease

One thing to keep in mind is that the car isn’t technically yours while you’re in the lease. Yes, you’re driving it and enjoying all the perks, but ownership only kicks in once you pay the residual at the end of the term.

For most people that’s no big deal, especially if the plan is to upgrade regularly. But if you like the feeling of 100% ownership from day one or want to make modifications to the car during the lease term, then it might not be your cup of tea.

3. Residual value is mandatory and can be a big lump sum to budget for

Every novated lease comes with a residual value, and paying it out at the end of the term is non-negotiable. Think of it as a balloon payment that sits waiting for you once the lease finishes. 

Depending on the car and lease length, it can be a pretty hefty amount, so it’s something you’ll need to plan ahead for. 

Some people cover it by selling or trading in the vehicle (and starting a new lease), while others choose to pay it outright. Either way, it’s an important cost to keep on your radar from the start.

4. For non-EVs, Fringe Benefits Tax can reduce the savings

If you’re leasing a petrol or diesel car, the Fringe Benefits Tax (FBT) still applies, and that can eat into the overall savings. It doesn’t mean you won’t save money, but the benefit isn’t usually as big as it is with an EV.

The amount of FBT depends on the value of the car and how it’s packaged, so it’s worth running the numbers before locking anything in. 

For some drivers, a non-EV lease still stacks up well, but if maximum tax savings are your goal, an eligible electric vehicle usually comes out ahead.

5. If you leave your job, there’s a bit of process involved

If you change jobs, your novated lease doesn’t just stop, but there is a bit of admin to work through. The lease needs to be transferred to your new employer, if that’s even an option.

Most employers are familiar with the process and it usually runs smoothly, but it’s not automatic. You’ll want to check that your new workplace is happy to continue the arrangement. 

If they’re not, you still have options like taking over the lease privately (de-novate the lease) or paying it out directly with the financier. It takes a little more planning if a job move is on the cards.

6. Lease contracts are less flexible than car loans or paying cash

Novated lease contracts tend to be more structured than other ways of buying a car. Unlike paying cash or taking out a standard car loan, you can’t easily change the repayment terms or exit early without extra costs. 

This means you’ll need to be comfortable with the lease length and residual value from the start. Once you sign, the agreement is pretty much locked in until the term ends.

It works well if you like the certainty of fixed payments, but if flexibility is your priority, a novated lease may not be the best fit.

7. Only available if your employer supports novated leasing

Salary packaging a car isn’t something you can set up on your own – you need two to tango. Your employer has to be on board because the payments come straight out of your salary. 

If your workplace doesn’t support novated leasing, you won’t be able to take advantage of the tax savings or bundled running costs.

Some companies are already set up and make the process simple, while others might not offer it at all, so it’s always worth asking HR or your manager before you get too far down the track.

8. Extra repayments aren’t allowed and early exit fees may apply

You usually can’t make extra repayments like you can with some car loans. The lease runs for the full agreed term, and if you decide to end it early, there may be exit fees involved.

That means it’s not as flexible if your situation changes and you want to pay off the car faster or switch things up midway through.

It’s always a good idea to check the terms upfront so you know what costs might apply if you decide to finish your lease early. We can provide these details for you.

9. You’ll still pay interest and admin fees, meaning it may cost more than buying outright

Even though salary packaging can unlock tax savings, you’ll still be paying interest on the finance plus admin fees to keep the lease running. Over time, this can make it more expensive than simply buying a car outright with cash.

But you need to factor in the running costs that are included in a novated lease. Buying a car with cash means you’ll still need to fork out yourself for fuel, servicing, insurance and tyres.

Is a novated lease worth it in Australia?

We like to think a novated lease is worth it due to the tax savings, the convenience of included running costs, access to fleet discounts, and the flexibility to upgrade or switch cars more often. All of these pros ring especially true if you’re looking at an EV. 

On the flip side, you technically don’t own the car until the residual is paid, extra repayments aren’t allowed, and you’ll still be stung with interest and fees over the lease term. 

Believe us when we say: For many Australians, the benefits outweigh the downsides. Ultimately, though, it comes down to your personal circumstances and what you value most in a car finance arrangement.

Expert tips to help you decide if novated leases are worth it

• Check with your employer first: Ensure your company supports novated leasing and which providers they work with.
• Run the numbers: Use a novated lease calculator to compare potential tax savings and regular repayments to see if it’s viable based on your situation and the car you want.
• Consider your vehicle needs: Think about how long you want to keep the car, how many kilometres you drive per year, and whether an EV could be a suitable fit.
• Plan for the residual: Know the end-of-lease options and budget for the residual value to avoid surprises.
• Think about your job stability: Are you in an industry or workplace that’s stable for the foreseeable future? If not, or if you might change jobs, check how easy it is to transfer the lease.
• Compare with other finance options: Compare us to other ways to buy a car, such as personal or auto loans and buying outright. 
• Ask about fleet discounts: Take advantage of deals on popular models that aren’t available to the general public (psst… we’ll let you know). 

Understand FBT implications: Especially for non-EVs, know how Fringe Benefits Tax affects your potential savings.