Car Loan Tax Claim? Discover Hidden Deductions (2026)

As the end of the financial year approaches, you might find yourself wondering if you can claim your car loan on your taxes. With the cost of living rising and every dollar saved being a victory, understanding the intricacies of tax deductions for car loans can be a powerful tool in your financial arsenal. Whether you use your vehicle for business or are simply navigating your personal expenses, it's crucial to know what options are available to you and how you can benefit.

Understanding Car Loan Tax Deductions

In Australia, the ability to claim a car loan on your taxes largely depends on how you use your vehicle. If your car is used for business purposes, you may be eligible to claim deductions on the interest paid on your car loan. However, if your car is solely for personal use, the options for claiming deductions are limited.

For business use, the Australian Taxation Office (ATO) allows you to claim deductions for expenses directly related to earning your income. This includes the interest on your car loan, which can be a significant portion of your vehicle expenses. It's important to note that only the business-related portion of the interest is deductible.

Current Rates and Requirements

In 2026, interest rates for car loans in Australia typically range between 6.49% and 12%, depending on factors such as your credit score, the loan term, and the lender you choose. With 83+ lenders on our panel at Esteb and Co, we can help you find the most competitive rates tailored to your financial situation.

Lender	Interest Rate Range	Loan Term
Bank A	6.49% - 7.5%	3 to 5 years
Credit Union B	7.0% - 9.0%	5 to 7 years
Online Lender C	8.0% - 12%	3 to 6 years

To be eligible for claiming interest on your car loan as a tax deduction, your vehicle must be used for business purposes. You should keep detailed records of your vehicle's business use, such as a logbook detailing the kilometres driven for work. Additionally, ensure your car loan agreement specifies the interest amount paid, as this will be required for tax purposes.

How to Claim Car Loan Interest on Your Taxes

Claiming car loan interest on your taxes can seem daunting, but following these steps can simplify the process:

1. Determine Business Use Percentage: Keep a logbook for a minimum of 12 weeks to establish the percentage of time your car is used for business purposes. This percentage will determine the portion of interest you can claim.
2. Gather Documentation: Collect all necessary documents, including your car loan agreement, interest payment statements, and your logbook.
3. Calculate the Deductible Interest: Multiply the total interest paid by the business use percentage to find the deductible amount.
4. Complete Your Tax Return: Include the deductible interest in your tax return under work-related car expenses.
5. Consult a Tax Professional: For complex situations or if you're unsure, consider consulting a tax professional to ensure accuracy and compliance with ATO guidelines.

Tips and Considerations

Here are some expert tips to maximise your tax deductions and ensure compliance:

• Keep Accurate Records: Consistent and accurate record-keeping is essential for substantiating your claims. Use digital tools or apps to simplify tracking.
• Understand Depreciation: In addition to interest, you may also be eligible to claim depreciation on your vehicle, further reducing your taxable income.
• Review Loan Terms: Regularly review your car loan terms and interest rates to ensure you're getting the best deal. Refinancing could potentially reduce your interest payments and increase your savings.
• Stay Informed: Tax regulations can change, so staying informed about the latest ATO guidelines will help you make the most of your deductions.
• Consult a Professional: Engaging a tax advisor can provide personalised advice and uncover additional deductions you might not be aware of.

Frequently Asked Questions

1. Can I claim my entire car loan on my taxes?
No, you can only claim the interest portion of the loan, and only the percentage that corresponds to business use.

2. What if I use my car for both personal and business purposes?
You can claim the interest for the business use portion. Maintain accurate records to determine the correct percentage.

3. Are there any other vehicle-related expenses I can claim?
Yes, besides interest, you may claim depreciation, fuel, maintenance, and insurance costs associated with business use.

4. How often should I update my logbook?
The ATO requires a new logbook every five years or whenever your work-related vehicle use significantly changes.

5. Can I claim interest if I'm self-employed?
Yes, self-employed individuals can claim interest on their car loans, provided the vehicle is used for business purposes.

6. Does the type of car loan affect my tax deductions?
The type of loan (secured or unsecured) doesn't affect your ability to claim interest, but the interest rate might vary.

7. How does Esteb and Co help with car loans?
With access to over 83 lenders, Esteb and Co offers competitive rates and personalised advice to help you find the best car loan for your needs.