Compare finance types
Novated lease vs Operating lease: which is right for your business?
The main difference between a novated lease and a operating lease is how they are secured and repaid: a novated lease suits salaried employees on higher marginal tax rates whose employer offers salary packaging, while a operating lease suits businesses replacing equipment on a fixed cycle who want no residual or resale exposure.
Novated lease vs Operating lease at a glance
| Novated lease | Operating lease | |
|---|---|---|
| What it is | 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. | An operating lease is a rental agreement where the financier owns the asset, carries the residual value risk and leases it to your business for a fixed monthly payment over an agreed term. At the end you simply hand the asset back, with no residual to pay and no resale to manage. |
| Amount | $15,000 – $150,000 | $10,000 – $2,000,000 |
| Term | 12–60 months | 12–60 months |
| Indicative rate | 6.9% – 13.5% p.a. | 7.5% – 15% p.a. |
| Rate type | Fixed | Fixed |
| Security | Secured by the asset | Secured by the asset |
| Repayments | Deducted each pay cycle from salary | Monthly rental |
| Typical speed | 3–10 business days including employer sign-off | 2–5 business days |
| Best for | Salaried employees on higher marginal tax rates whose employer offers salary packaging | Businesses replacing equipment on a fixed cycle who want no residual or resale exposure |
| Consider the other if | Contractors, sole traders, people in insecure employment, or low-value used car purchases | Long-life assets you intend to keep and own outright |
| Tax | Involves income tax, GST and FBT interactions. Eligible EVs and PHEVs may attract an FBT exemption. Get advice from your accountant and employer. | Rentals on business-use assets are generally deductible as an operating expense and GST is charged on each payment. Confirm with your accountant. |
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 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.
When to choose a operating lease
A operating lease is usually the better fit for businesses replacing equipment on a fixed cycle who want no residual or resale exposure. Its main advantages are no residual to pay and no resale risk at term end, fixed, predictable monthly cost, simple upgrade path onto newer equipment. Consider the alternative if long-life assets you intend to keep and own outright.
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.
Operating lease
An operating lease is a rental agreement where the financier owns the asset, carries the residual value risk and leases it to your business for a fixed monthly payment over an agreed term. At the end you simply hand the asset back, with no residual to pay and no resale to manage.