Salary Sacrifice Car Loan? Discover Hidden Savings (2026)

Are you wondering if you can salary sacrifice your car loan? For many Australians, finding the best way to finance a vehicle is a key financial decision. With the cost of living on the rise, exploring different options to reduce taxable income while acquiring a new car can be enticing. Salary sacrificing your car loan could be a viable strategy, but it’s crucial to understand how it works and whether it's the right choice for you.

Understanding Salary Sacrifice for Car Loans

Salary sacrificing, also known as salary packaging, is an arrangement where you agree to forego part of your future salary in return for benefits of a similar value. Typically, this is used for superannuation contributions, laptops, and vehicles. When it comes to cars, this is usually referred to as a novated lease rather than a traditional car loan.

In a novated lease agreement, your employer makes lease payments on your behalf using your pre-tax salary. This can reduce your taxable income, potentially leading to tax savings. However, it’s important to note that a novated lease is not a car loan in the traditional sense and comes with distinct terms and conditions.

Current Market Information and Options

As of 2026, interest rates for car loans in Australia range from 6.49% to 12%, depending on factors such as your credit score, the loan term, and the lender. In contrast, novated lease arrangements offer varied benefits that might not be present in a standard car loan, such as tax savings and bundled expenses.

Eligibility criteria for salary sacrificing via a novated lease typically include being employed with an organisation that offers salary packaging. Each employer may have different policies, so it’s essential to check with your HR department.

How to Salary Sacrifice Your Car Loan

1. Check Eligibility: Confirm with your employer if they offer salary packaging for vehicles. Not all employers provide this option.
2. Financial Assessment: Evaluate your finances to determine if a novated lease is more beneficial than a traditional car loan. Consider your taxable income, tax bracket, and expected savings.
3. Choose a Vehicle: Select the car you wish to lease. Keep in mind that the type of vehicle could impact the terms of your novated lease.
4. Select a Lender: Work with a mortgage broking company like Esteb and Co, which has access to 83+ lenders, to find the best novated lease agreement.
5. Agreement Process: Once you choose a lender, your employer will enter into a novated lease agreement with the finance provider.
6. Salary Packaging Agreement: Sign a salary packaging agreement with your employer, outlining the terms and conditions.
7. Lease Management: Manage your lease and make sure to keep track of any changes in your employment status that might affect the arrangement.

Tips and Considerations

• Understand the Costs: While novated leases can offer tax savings, they can also include fees and charges. Ensure you are aware of all costs involved.
• Long-Term Implications: Consider how a novated lease fits into your long-term financial plan. If you plan to change jobs, understand how it could affect your lease.
• Flexibility: Assess the flexibility of the lease terms. Some agreements may have restrictions on mileage or modifications to the vehicle.
• Compare Options: Use a trusted mortgage broker like Esteb and Co to compare different lenders and find a package that best suits your needs.
• Review Tax Implications: Speak with a tax adviser to understand the implications on your personal tax situation.

Frequently Asked Questions

1. Can I salary sacrifice a used car?
   Typically, novated leases are available for new or near-new vehicles. However, some employers may allow used cars under certain conditions.
2. What happens if I leave my job?
   If you leave your job, the novated lease agreement may need to be renegotiated, or you might have to assume responsibility for the lease payments.
3. How much can I save with a novated lease?
   Savings depend on your tax bracket, the cost of the vehicle, and the terms of the lease. Consult a financial advisor for personalised estimates.
4. Are all car expenses covered in a novated lease?
   Many novated leases cover running costs such as fuel, maintenance, and insurance, but you should confirm what is included in your specific agreement.
5. Is a novated lease better than buying outright?
   This depends on your financial situation and goals. Consider the tax benefits, cash flow, and long-term costs of each option.
6. Can I exit a novated lease early?
   Exiting early can be costly due to potential termination fees. Review your lease agreement and consider the terms before signing.
7. Do novated leases affect my credit score?
   Generally, they do not impact your credit score, as the lease is tied to your employer. However, defaulting could have repercussions.