Claim Interest on Car Loan? Here's How to Save Big

In today's fast-paced world, owning a vehicle is often a necessity rather than a luxury. However, the financial commitment involved in purchasing a car can be daunting. One common question that arises, particularly for those balancing personal and business expenses, is whether you can claim interest on a car loan. Let's explore this topic and understand how it can impact your financial planning.

Understanding Car Loan Interest Deductions

When you take out a car loan, you commit to repaying both the principal amount and the interest accrued over the term of the loan. While the principal repayment is straightforward, many wonder if the interest component can be claimed as a deduction, easing the financial burden. In Australia, the ability to claim car loan interest as a tax deduction largely depends on the purpose of the vehicle's use.

Eligibility for Claiming Car Loan Interest

To claim car loan interest as a tax deduction, the vehicle must be used for business purposes. This doesn't mean the car has to be solely for business use, but rather a portion of its use must be for generating income. The Australian Taxation Office (ATO) allows you to claim the proportion of the loan interest that corresponds to the percentage of business use.

For instance, if you use your car 60% for business purposes and 40% for personal use, you can claim 60% of the car loan interest as a deduction. It's essential to maintain detailed records, such as a logbook, to substantiate the business use of your vehicle.

In 2026, interest rates for car loans in Australia typically range from 6.49% to 12%, depending on your credit score, the lender, and the type of vehicle. With access to over 83 lenders, Esteb and Co can help you find competitive rates that suit your financial situation.

How to Claim Car Loan Interest on Your Tax Return

Claiming car loan interest on your tax return requires careful calculation and documentation. Here are the steps to follow:

1. Determine Business Use Percentage: Keep a logbook for a representative period (usually 12 weeks) to track how much you use the vehicle for business purposes.
2. Calculate Total Interest Paid: Review your loan statements to determine the total interest paid over the financial year.
3. Apply Business Use Percentage: Multiply the total interest by the percentage of business use to calculate the deductible amount.
4. Complete Your Tax Return: Include the deductible interest amount in the appropriate section of your tax return.
5. Maintain Records: Keep all relevant documentation, such as loan statements and your logbook, for at least five years in case of an audit.

Tips and Considerations for Claiming Car Loan Interest

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

• Accurate Record-Keeping: The importance of maintaining a detailed logbook cannot be overstated. Ensure it is accurate and up-to-date.
• Understand Tax Implications: Consult with a tax professional to understand any potential implications of claiming car loan interest.
• Review Loan Terms: Consider refinancing options through Esteb and Co's panel of lenders to secure better rates, potentially reducing your overall interest payments.
• Stay Informed: Tax laws and regulations can change. Stay informed about any updates that might affect your ability to claim interest deductions.

Frequently Asked Questions

1. Can I claim the full interest if my car is used for both business and personal purposes?
   No, you can only claim the portion of interest that corresponds to the business use percentage of the vehicle.
2. What if I don't have a logbook?
   Without a logbook, it can be difficult to substantiate the business use of your vehicle, which may impact your ability to claim deductions.
3. Are there any exceptions to the logbook requirement?
   In some cases, other records such as odometer readings or travel diaries may suffice, but it's best to maintain a logbook.
4. Can I claim interest on a personal car loan?
   Only if the vehicle is used for income-generating activities; otherwise, personal use doesn't qualify for deductions.
5. How do I know if refinancing is a good option?
   Consult with Esteb and Co to explore refinancing options and assess potential savings on interest payments.
6. What happens if I overclaim?
   Overclaiming can result in penalties. Ensure accuracy in your claims and maintain thorough documentation.
7. Can I claim other car expenses?
   Yes, expenses such as fuel, maintenance, and registration can also be claimed proportionally when the vehicle is used for business purposes.