Compare finance types
Finance lease vs Novated lease: which is right for your business?
The main difference between a finance lease and a novated lease is how they are secured and repaid: a finance lease suits businesses that refresh equipment regularly or prefer rental-style deductions, while a novated lease suits salaried employees on higher marginal tax rates whose employer offers salary packaging.
Finance lease vs Novated lease at a glance
| Finance lease | Novated lease | |
|---|---|---|
| What it is | A finance lease is equipment finance where the lender owns the asset and leases it to your business for a fixed term, with a residual value at the end that you can pay out, refinance or return against. Lease payments are usually fully deductible. | 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 | $10,000 – $1,000,000 | $15,000 – $150,000 |
| Term | 12–60 months | 12–60 months |
| Indicative rate | 7.2% – 14.9% 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 | 1–3 business days | 3–10 business days including employer sign-off |
| Best for | Businesses that refresh equipment regularly or prefer rental-style deductions | Salaried employees on higher marginal tax rates whose employer offers salary packaging |
| Consider the other if | Assets you want to own outright and claim GST on upfront | Contractors, sole traders, people in insecure employment, or low-value used car purchases |
| Tax | Lease payments are generally deductible as an operating expense. GST is charged on each payment. | 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 finance lease
A finance lease is usually the better fit for businesses that refresh equipment regularly or prefer rental-style deductions. Its main advantages are payments usually fully deductible, flexible end-of-term options, preserves cash and credit lines. Consider the alternative if assets you want to own outright and claim gst on upfront.
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.
Finance lease
A finance lease is equipment finance where the lender owns the asset and leases it to your business for a fixed term, with a residual value at the end that you can pay out, refinance or return against. Lease payments are usually fully deductible.
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.