When it comes to getting behind the wheel of a new vehicle, two of the most common pathways are either financing through a novated lease or buying the car outright. Both options have their advantages, but which one delivers better value over the long term?
Choosing between a novated lease and purchasing a vehicle involves weighing not just upfront costs, but also running expenses, convenience, tax benefits and financial flexibility. Let’s break down the differences to help you understand which option might suit your lifestyle and financial goals better.
How Does a Novated Lease Work?
A novated lease is a three-way contract between you, your employer, and a finance company. Under this arrangement, your employer agrees to make repayments on your behalf through salary packaging, using a combination of your pre-tax and post-tax income.
You get to drive the car for both personal and work-related use, while your employer manages the repayments directly with the finance provider. This can result in potential income tax savings and streamlined vehicle management for many Australian employees.
Paying Cash for a Car
Buying a car outright typically means paying the full purchase price up front using cash or savings. You immediately own the vehicle with no ongoing finance obligations beyond general running costs such as registration, maintenance, fuel, and servicing.
Owning a car outright gives you full control, but it also ties up a significant amount of capital funds that could otherwise be invested or used elsewhere.
Side-by-Side Cost Comparison Over 3–5 Years
While exact figures vary depending on your vehicle choice, salary, and other factors, here’s a general comparison of considerations:
| Category | Novated Lease | Buying Outright |
| Upfront Payment | no deposit required. | Full vehicle price paid upfront |
| Tax Impact | Various tax benefits. | No tax benefits. |
| Vehicle Ownership | You don’t own the vehicle during the lease, but at the end of the lease you have the option to payout the residual and own the vehicle outright. | Immediate ownership. |
| Flexibility | You’re not committed to long-term ownership unless you choose to buy the car at the end of the lease.. | Must sell or trade privately to upgrade. |
| Cash Flow | Protects cash savings and spreads cost over time. | Large upfront cost impacts cash reserves and opportunity cost |
| Vehicle Running Costs | Can be bundled with repayments (optional depending on finance arrangement) and save on GST. | Paid separately and directly by the owner. |
| End of Term | Option to refinance, trade, or pay residual amount (if applicable). | Vehicle is already fully owned. |
Both options come with different financial dynamics. Novated lease can offer predictable budgeting by bundling the running costs and repayments through salary deductions, while buying outright offers simplicity and avoids any long-term obligations.
Which Option Saves More?
If maintaining flexible cash flow, benefiting from salary packaging (where available), and having predictable costs appeal to you, a novated lease could deliver noticeable financial advantages over time.
Thanks to the current EV FBT exemption, if you’re considering an electric vehicle that meets the eligibility criteria, a novated lease is likely the most cost-effective way to own an EV in Australia today, even when compared to paying cash.
However, if you prefer owning your vehicle outright with no ongoing obligations and you have the available savings, purchasing may be the better path.
Ultimately, the best decision depends on your financial situation, lifestyle preferences, and long-term plans.
Ready to Explore Your Options?
At Fingo, we’re here to help you navigate vehicle finance solutions with clarity and ease. Whether you’re looking into novated finance or weighing up your next move in the car market, our expert team can guide you through the process.
Discover smarter vehicle solutions with Fingo today.