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Hire purchase vs Novated lease: which is right for your business?
The main difference between a hire purchase and a novated lease is how they are secured and repaid: a hire purchase suits businesses wanting eventual ownership where a lender or accountant specifically prefers this structure, while a novated lease suits salaried employees on higher marginal tax rates whose employer offers salary packaging.
Hire purchase vs Novated lease at a glance
| Hire purchase | Novated lease | |
|---|---|---|
| What it is | Hire purchase is an asset finance structure where the financier buys the asset and hires it to your business for a fixed term, with ownership transferring automatically once the final instalment — including any balloon — is paid. It sits between a lease and a chattel mortgage, and is used less often in Australia since GST reforms favoured the chattel mortgage. | 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 – $2,000,000 | $15,000 – $150,000 |
| Term | 12–84 months | 12–60 months |
| Indicative rate | 7% – 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 | 24–72 hours for low-doc, longer for full-doc | 3–10 business days including employer sign-off |
| Best for | Businesses wanting eventual ownership where a lender or accountant specifically prefers this structure | Salaried employees on higher marginal tax rates whose employer offers salary packaging |
| Consider the other if | Most GST-registered businesses, where a chattel mortgage usually delivers a better GST outcome | Contractors, sole traders, people in insecure employment, or low-value used car purchases |
| Tax | Interest and depreciation are generally claimable, and GST treatment differs from a chattel mortgage. Confirm with your accountant before choosing. | 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 hire purchase
A hire purchase is usually the better fit for businesses wanting eventual ownership where a lender or accountant specifically prefers this structure. Its main advantages are ownership transfers automatically on the final payment, fixed instalments with an optional balloon, secured pricing, well below unsecured lending. Consider the alternative if most gst-registered businesses, where a chattel mortgage usually delivers a better gst outcome.
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.
Hire purchase
Hire purchase is an asset finance structure where the financier buys the asset and hires it to your business for a fixed term, with ownership transferring automatically once the final instalment — including any balloon — is paid. It sits between a lease and a chattel mortgage, and is used less often in Australia since GST reforms favoured the chattel mortgage.
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.