Car Loan vs Novated Lease: What’s the Better Way to Finance Your Next Car?

When it comes to buying a new car, one of the first big decisions is how to pay for it, and two of the most common options are a car loan or a novated lease. Both have their advantages, but depending on your lifestyle and financial goals, one may offer more flexibility and long-term value than the other.

At Sherlock Loans, we help everyday Australians cut through the jargon so you can make a smart, informed decision. Here's what you need to know.

What Is a Car Loan?

A car loan is a straightforward form of finance where you borrow money to purchase a car, then pay it back over time with interest. The loan is typically secured against the car, meaning the vehicle is used as collateral. You own the car from day one, and you’re free to drive it, customise it, or sell it when you like.

Benefits of a car loan:

• You own the car outright (once the loan is paid off)

• Flexible loan terms and repayment options

• No restrictions on personal or business use

• Easier to pay off early or refinance

• Competitive rates, especially when using a broker like Sherlock Loans

  
  

What Is a Novated Lease?

A novated lease is a three-way agreement between you, your employer, and a leasing company. Your employer makes the lease payments from your pre-tax salary, which can reduce your taxable income. The lease usually includes running costs like rego, fuel, and maintenance, bundled into the payment.

Benefits of a novated lease:

• Potential tax savings for higher income earners

• Fixed monthly costs (including car expenses)

• New car every few years

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But here’s the catch...

The Drawbacks to Consider

While novated leases can be tax-effective, they also come with some limitations:

• You don’t own the car unless you pay a balloon payment at the end

• If you leave your job, you might have to take over the lease (and the costs)

• Limited flexibility on vehicle choice and usage

• Can be more expensive overall once fees and bundled costs are added up

  
  

Why a Car Loan Might Be the Better Long-Term Option

For many Aussies, especially those who value flexibility and long-term ownership, a car loan makes more financial sense. You’re not tied to an employer, there are often no exit penalties, and you have total control over the asset.

At Sherlock Loans, we work with over 40 lenders to find the car loan that suits your situation — whether you're upgrading, downsizing, or buying your first set of wheels.

Final Verdict

If you’re after ownership, flexibility, and control, a car loan is often the smarter move — especially when you partner with a broker like Sherlock Loans to find a competitive deal.

Ready to explore your options?👉 Apply online or chat with our team today.