Car Loan Interest – Tax Relief or Myth? (2026 Guide)

Are you wondering if you can claim car loan interest on your taxes in Australia? You're not alone. Navigating the complex world of tax deductions can be daunting, especially when it comes to understanding what you can and cannot claim. This guide is designed to demystify the process, providing you with the clarity and confidence needed to potentially save money on your tax return.

Understanding Car Loan Interest Deductions

In Australia, car loan interest can be claimed as a tax deduction if the vehicle is used for work-related purposes. It’s important to differentiate between private and business use, as this distinction plays a crucial role in determining eligibility for deductions. If your vehicle is used solely for personal reasons, unfortunately, the interest on your car loan cannot be claimed. However, if you use your car for business activities, you may be eligible for a deduction on the interest paid.

The amount you can claim depends on the percentage of your car's use for work-related purposes. The Australian Taxation Office (ATO) requires detailed records to substantiate your claims, and this can include a logbook showing the work-related use of your vehicle.

Current Interest Rates and Claim Requirements

Interest rates for car loans in 2026 range from approximately 6.49% to 12%, depending on the lender, loan amount, and your credit profile. To claim car loan interest on your taxes, you need to meet specific criteria:

• Your vehicle must be used for business purposes, either partly or fully.
• You must keep accurate records, such as a logbook, to prove the extent of business use.
• The interest must be on a loan directly related to the purchase of a vehicle used for work.

Esteb and Co, with access to over 83 lenders, can assist in finding a car loan that suits your needs while considering potential tax advantages.

Steps to Claim Car Loan Interest on Your Taxes

1. Determine Vehicle Use: Calculate the percentage of time your vehicle is used for business purposes. This percentage will directly affect the deductible amount.
2. Keep Accurate Records: Maintain a logbook for at least 12 consecutive weeks, detailing business trips and purposes.
3. Calculate Deductible Interest: Multiply the total interest paid on your car loan by the percentage of business use.
4. File Your Tax Return: Include the deductible amount in your tax return under work-related expenses.
5. Retain Documentation: Keep all records and documentation for at least five years in case of an audit by the ATO.

Expert Tips and Considerations

Here are some expert tips to ensure a smooth process when claiming car loan interest:

• Consult a Tax Professional: If you're unsure about any details, consulting a tax advisor can provide clarity and ensure compliance with ATO regulations.
• Review Loan Terms: When securing a car loan, choose terms that offer favourable interest rates for business use. Esteb and Co can assist in finding competitive rates through our extensive lender panel.
• Regularly Update Records: Consistently update your logbook and other records to reflect any changes in vehicle use.
• Understand Depreciation: Alongside interest, you might be eligible to claim depreciation on your vehicle, enhancing your tax deductions.

Frequently Asked Questions

1. Can I claim interest if I use my car for both personal and business purposes?
   Yes, but only the portion of interest attributable to business use is deductible. Accurate records are essential to substantiate the claim.
2. What happens if I don’t keep a logbook?
   Without a logbook, claiming interest becomes challenging as you need to prove the extent of business use to the ATO.
3. Is there a limit to the amount of interest I can claim?
   No fixed limit exists, but the claim must reflect the percentage of business use accurately.
4. What documentation is required for the ATO?
   Keep a detailed logbook, loan statements, and any other relevant business use evidence.
5. Can Esteb and Co help me find a suitable car loan?
   Absolutely. With access to 83+ lenders, Esteb and Co can help you find a car loan that fits your needs and maximises tax benefits.
6. Do electric vehicle loans have different tax implications?
   While interest deduction rules are the same, electric vehicles may offer additional tax incentives. Consult a tax professional for specific advice.