Car Loan Interest – Unlock Tax Savings (2026 Guide)

You're not alone if you're wondering whether you can claim car loan interest on your taxes. Many Australians are looking for ways to maximise their tax deductions, especially when it comes to big-ticket items like car loans. Understanding how car loan interest can potentially be claimed on taxes might save you a significant amount of money. So, let's dive into the details and see if you can benefit from this opportunity.

Understanding Car Loan Interest and Tax Claims

When it comes to car loans, interest is one of the most significant costs you'll face. However, the possibility of claiming this interest on your taxes could be a game-changer. In Australia, the ability to claim car loan interest on your taxes primarily depends on how you use the car. If the vehicle is used for business purposes, you might be eligible to claim some, or all, of the interest as a tax deduction. This applies to both self-employed individuals and employees who use their car for work-related activities.

Eligibility and Criteria for Claiming Car Loan Interest

Before diving into the numbers, let's understand the eligibility requirements. The Australian Taxation Office (ATO) has set specific criteria for claiming deductions on car loan interest:

• Business Use Percentage: The car must be used for business purposes. The percentage of business use determines the amount of interest you can claim.
• Logbook Method: To substantiate your claim, you must maintain a detailed logbook for 12 weeks, recording all trips made for business purposes.
• Interest Rates: Knowing the current market rates can help you evaluate the cost-benefit ratio. As of 2026, car loan interest rates in Australia range from 6.49% to 12% depending on your credit score and lender.

Let's illustrate this with an example. Suppose you have a car loan with an interest rate of 8% and you use your car 60% of the time for business purposes. You can potentially claim 60% of the interest paid as a tax deduction.

Steps to Claim Car Loan Interest

Here’s a step-by-step guide on how to claim car loan interest on your taxes:

1. Keep a Logbook: Track your car usage over a 12-week period to determine the percentage used for business purposes.
2. Calculate Business Use: Use the data from your logbook to determine the business use percentage of your vehicle.
3. Obtain Interest Statement: Request an interest statement from your lender to know the exact amount of interest paid over the financial year.
4. Calculate Deductible Interest: Multiply the total interest paid by the business use percentage to find out how much you can claim.
5. File Your Tax Return: Include the deductible interest amount in your tax return under the business expenses section.

Tips and Considerations

As you navigate the process of claiming car loan interest on your taxes, here are some expert tips and considerations:

• Consult a Tax Professional: Tax laws can be complex, and a professional can provide tailored advice to maximise your deductions.
• Regularly Update Your Logbook: Keep your logbook up to date to ensure accuracy in your claims.
• Check with Your Lender: Given that Esteb and Co works with over 83 lenders, it's wise to check with your lender for specific interest breakdowns relevant to your loan.
• Review ATO Guidelines: Stay informed about any changes in ATO policies regarding car loan interest deductions.

Frequently Asked Questions

• Can I claim car loan interest if I am an employee? Yes, but only if the car is used for work-related purposes and you have a logbook to support your claim.
• What if I use the car for both personal and business purposes? You can only claim the interest proportionate to the business use percentage.
• Do I need to keep a logbook every year? A new logbook is required every five years unless your business use changes significantly.
• Can I claim car loan interest if I lease my car? No, leasing a car involves different tax claim rules where lease payments may be deductible instead.
• What happens if I don't keep a logbook? Without a logbook, you cannot substantiate your business use claim, which may lead to disallowed deductions.
• Are there any other car-related deductions I can claim? Yes, you may also claim expenses like fuel, maintenance, and depreciation based on the business use percentage.