Salary Sacrifice a Car Loan? Discover Financial Freedom

For many Australians, owning a car is not just a convenience—it's a necessity. But with the rising costs of living, financing a new vehicle can seem daunting. If you're looking to stretch your salary further, you might be wondering: can you salary sacrifice a car loan? Understanding how salary sacrificing works and whether you can apply it to a car loan could be the key to unlocking more value from your income.

Understanding Salary Sacrificing

Salary sacrificing, also known as salary packaging, is a financial arrangement where you agree to forgo part of your pre-tax salary in exchange for benefits of similar value. These benefits can include superannuation, electronics, and in some cases, a vehicle. The main advantage is that by reducing your taxable income, you potentially pay less tax, increasing your take-home pay.

When it comes to vehicles, salary sacrificing is typically used for what's known as a novated lease. This is a three-way agreement between you, your employer, and a finance company. Instead of using a car loan, your employer makes lease payments directly from your pre-tax salary.

Rates, Requirements, and Options

Understanding the financial landscape in 2026 is crucial for making an informed decision about salary sacrificing a car. Here's what you need to know:

Interest rates for novated leases typically range from 6.49% to 12%, depending on factors such as your credit history and the lender's terms. With over 83+ lenders available through Esteb and Co, finding a competitive rate is achievable.

To be eligible for salary sacrificing a car, you generally need to be employed in a company that offers this benefit. Furthermore, your employer must be willing to facilitate a novated lease arrangement. It's also essential to consider the type of vehicle you wish to finance, as luxury cars may not be eligible under certain salary packaging rules.

Feature	Car Loan	Novated Lease
Interest Rate	8% - 15%	6.49% - 12%
Tax Benefits	No	Yes, reduces taxable income
Ownership	Immediate	End of lease

How to Salary Sacrifice a Car Loan

Here are the steps you need to take to set up a salary sacrifice arrangement for a car:

1. Check Eligibility: Confirm with your employer whether they offer salary sacrificing for vehicles and if you meet the necessary criteria.
2. Select a Vehicle: Choose a car that fits within the salary packaging guidelines and your budget.
3. Find a Finance Provider: Use Esteb and Co's network of 83+ lenders to find a suitable novated lease option with competitive rates.
4. Set Up the Agreement: Work with your employer and the finance provider to establish the novated lease agreement.
5. Manage the Lease: Ensure regular salary deductions are made and manage any running costs that might also be salary packaged.

Tips and Considerations

Before diving into a salary sacrifice arrangement, consider these expert tips:

• Understand the Total Costs: Consider not just the lease payments but also the running costs, insurance, and maintenance. Some of these can also be salary sacrificed.
• Evaluate the Tax Implications: While salary sacrificing can reduce your taxable income, it's wise to consult with a tax advisor to understand how it impacts your overall tax situation.
• Be Mindful of Fringe Benefits Tax (FBT): Employers may pass on the cost of FBT to you, which can affect the overall savings of a salary sacrifice arrangement.
• Plan for the Lease End: Consider what will happen at the end of the lease term. Options may include purchasing the car, entering a new lease, or returning the vehicle.

Frequently Asked Questions

1. Can I salary sacrifice a used car?
Generally, salary sacrificing is more common for new cars, but some lenders might allow used vehicles, provided they meet specific criteria.

2. Is a novated lease the same as a car loan?
No, a novated lease involves leasing a car through a three-party agreement, whereas a car loan is a direct financing option where you own the car outright.

3. What happens if I change jobs?
If you change employers, you will need to make alternative arrangements for the novated lease, such as transferring it to your new employer or converting it to a personal lease.

4. Can I include running costs in my salary sacrifice?
Yes, many novated lease arrangements allow you to package running costs like fuel, maintenance, and insurance to maximise tax benefits.

5. How does salary sacrificing a car affect my superannuation?
Salary sacrificing reduces your taxable income, which may affect the amount of superannuation contributions if your employer calculates super based on post-salary sacrifice income.

6. Are there any risks involved?
The primary risks include potential changes in employment or personal circumstances that might impact your ability to maintain the lease agreement.

7. Can all employers offer salary sacrificing?
Not all employers offer salary sacrificing as it involves administrative processes. It's essential to check with your HR department to see if it's available at your workplace.