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Equipment loan vs Novated lease: which is right for your business?
The main difference between a equipment loan and a novated lease is how they are secured and repaid: a equipment loan suits any business buying income-producing equipment, while a novated lease suits salaried employees on higher marginal tax rates whose employer offers salary packaging.
Equipment loan vs Novated lease at a glance
| Equipment loan | Novated lease | |
|---|---|---|
| What it is | An equipment loan is a secured business loan used to buy machinery, vehicles or technology, with the equipment itself as security and fixed repayments over 1 to 7 years. It covers new and used assets from dealers or private sellers. | A novated lease is a three-way agreement between an employee, their employer and a financier, where the employer deducts the lease payments and running costs from the employee’s pre-tax salary. The employee chooses and uses the car; the obligation moves with them if they change jobs. |
| Amount | $5,000 – $5,000,000 | $15,000 – $150,000 |
| Term | 12–84 months | 12–60 months |
| Indicative rate | 6.9% – 16% p.a. | 6.9% – 13.5% p.a. |
| Rate type | Fixed | Fixed |
| Security | Secured by the asset | Secured by the asset |
| Repayments | Monthly | Deducted each pay cycle from salary |
| Typical speed | Same day to 48 hours for low-doc | 3–10 business days including employer sign-off |
| Best for | Any business buying income-producing equipment | Salaried employees on higher marginal tax rates whose employer offers salary packaging |
| Consider the other if | General working capital with no asset purchase | Contractors, sole traders, people in insecure employment, or low-value used car purchases |
| Tax | Interest and depreciation are generally deductible. | Involves income tax, GST and FBT interactions. Eligible EVs and PHEVs may attract an FBT exemption. Get advice from your accountant and employer. |
Rates shown are indicative ranges observed across our lender panel for the period stated. They are not an offer or quote. Your rate depends on your business, the lender, the amount, the term and the security offered. The lender makes the final credit decision.
When to choose a equipment loan
A equipment loan is usually the better fit for any business buying income-producing equipment. Its main advantages are secured pricing, low-doc pathways for established businesses, new, used and private-sale assets. Consider the alternative if general working capital with no asset purchase.
When to choose a novated lease
A novated lease is usually the better fit for salaried employees on higher marginal tax rates whose employer offers salary packaging. Its main advantages are payments and running costs come from pre-tax salary, gst savings on the vehicle price and running costs, one bundled payment covers fuel, servicing and insurance. Consider the alternative if contractors, sole traders, people in insecure employment, or low-value used car purchases.
Equipment loan
An equipment loan is a secured business loan used to buy machinery, vehicles or technology, with the equipment itself as security and fixed repayments over 1 to 7 years. It covers new and used assets from dealers or private sellers.
Novated lease
A novated lease is a three-way agreement between an employee, their employer and a financier, where the employer deducts the lease payments and running costs from the employee’s pre-tax salary. The employee chooses and uses the car; the obligation moves with them if they change jobs.