Car Loan Interest – Unlock Tax Savings (2026 Guide)

As an Australian navigating the complexities of car loans, you may wonder whether you can claim interest on your car loan on taxes. This question is not just about saving money; it’s about understanding the intricate dance between tax law and financial strategy. With car loan interest rates in Australia ranging from 6.49% to 12% as of 2026, knowing whether you can claim this interest can make a significant difference in your annual financial planning.

Understanding Car Loan Interest and Tax Deductions

When you take out a car loan, a portion of your monthly payment goes towards interest. In Australia, you can claim this interest as a tax deduction, but only under specific circumstances. Typically, claiming car loan interest is possible if the vehicle is used for business purposes. This means that if you use your car solely for personal use, you generally cannot claim the interest paid. The Australian Taxation Office (ATO) allows deductions on interest if the vehicle is used to generate assessable income.

Eligibility and Rates for Claiming Car Loan Interest

To claim car loan interest on your taxes, certain criteria must be met:

• Business Use: The vehicle must be used predominantly for business purposes. Commuting between home and work typically doesn’t count unless your home is your primary place of business.
• Documentation: You must maintain detailed records to substantiate your claim. This includes a logbook if you're using the logbook method to calculate business use percentage.
• Interest Rate: As of 2026, interest rates on car loans in Australia range between 6.49% and 12%. These rates can vary based on lender, credit score, and loan terms.

Here's a comparison table of interest rates from various lenders:

At Esteb and Co, we can help you navigate these lenders and find the best rate through our access to over 83 lenders.

Steps to Claim Car Loan Interest

To successfully claim car loan interest on your taxes, follow these steps:

1. Determine Business Use: Establish the percentage of car use that is dedicated to business activities. This can be achieved using the logbook method or the cents per kilometre method.
2. Maintain Accurate Records: Keep track of all car-related expenses, including loan statements, fuel receipts, and maintenance costs.
3. Calculate Deductible Interest: Multiply the total interest paid by the percentage of business use to find the deductible amount.
4. Complete Your Tax Return: On your tax return, ensure you accurately report the deductible interest amount under car expenses.
5. Consult a Tax Professional: Consider seeking advice from a tax advisor to ensure all deductions are correctly claimed.

Tips and Considerations

Navigating tax deductions can be complex, so here are some tips to ease the process:

• Keep a Detailed Log: Use a reliable app or a physical logbook to keep track of business and personal use of the vehicle.
• Review Interest Rates: Regularly review your car loan terms. Refinancing might be an option if you're paying a higher interest rate than the current market average.
• Understand Tax Implications: Be aware that incorrectly claiming deductions can lead to penalties. It’s crucial to ensure accuracy and honesty in your claims.
• Leverage Professional Help: Tax professionals can provide valuable insights and help avoid costly mistakes.
• Stay Informed: Tax laws and rates can change. Stay updated with the latest information from the ATO or through professional advice.

Frequently Asked Questions

1. Can I claim car loan interest if I use my car for part-time business? Yes, but only the portion of interest that corresponds to the business use of the vehicle can be claimed.
2. How do I prove the business use of my car? Maintain a detailed logbook or use a reliable app to track business trips and kilometres travelled.
3. Is there a limit to the deductible car loan interest? There’s no specific limit, but it is proportional to business use and subject to ATO guidelines.
4. Can I claim interest on a personal car loan used for business? Yes, if you can prove that the car is used for income-generating activities.
5. Does refinancing my car loan affect my tax deduction? Refinancing can affect your interest rate but not the ability to claim interest. Ensure the new loan is also used for business purposes.
6. What happens if I make an error in my tax claim? If you discover an error, you can amend your tax return. A tax professional can assist in this process.
7. Are interest-only car loans deductible? Yes, if the car is used for business, interest paid on an interest-only loan can be claimed.