Car loan, chattel mortgage or novated lease: how they differ
Updated: 2 days ago
Checked 28 September 2026 · About 7 minutes
In brief
The right structure starts with who will use the car and how: you personally, your business, or you through your employer.
A car loan is for personal use. A chattel mortgage is for a business that buys and owns the vehicle. A novated lease runs through your employer's salary packaging.
A balloon payment lowers the regular repayment, but you pay more overall and still owe the lump sum at the end.
An electric car can be exempt from fringe benefits tax under a novated lease if it meets the ATO's conditions. Check the current rules before you sign.
The three structures side by side
Car loan | Chattel mortgage | Novated lease | |
Who it suits | Private buyers | Businesses using the vehicle for work | Employees whose employer offers salary packaging |
Who owns the car | You | The business, from day one | The financier, until the residual is paid |
How you repay | From your after-tax income | From the business | Through your pay, under a three-way agreement with your employer |
End of the term | Loan paid off, or a balloon if you chose one | Loan paid off, or a balloon if you chose one | Residual payment, then refinance, pay out or trade |
Tax points for your accountant | Usually none for private use | GST credits and deductions, to the extent of business use | Fringe benefits tax, and the electric car exemption |
Car loan: secured or unsecured
A car loan is personal credit, so the National Credit Code and responsible lending rules apply. A secured loan uses the car as security, which usually means a lower rate. If it isn't repaid, the lender can repossess and sell the car.
An unsecured personal loan doesn't use the car as security. That can suit older, unusual or privately sold vehicles that fall outside a lender's policy, but it usually costs more, and approval depends more heavily on your credit history, income and other debts.
The car itself shapes the options
Newer mainstream vehicles fit most secured lending policies. Older cars, classics, modified vehicles, imports, prestige models and some private sales may need a specialist lender or an unsecured loan. It pays to confirm the lender's policy on the vehicle before you apply.
Chattel mortgage
With a chattel mortgage, the business buys the vehicle, owns it from the start, and uses it as security for the loan. If the business is registered for GST, it may be able to claim the GST in the price upfront, to the extent the car is used for business.
For cars, the GST credit is capped at one-eleventh of the car limit ($6,353 in 2026–27). Depreciation and interest may also be deductible. Your accountant should confirm what applies to you.
Novated lease
A novated lease is an agreement between you, your employer and a financier. Your employer makes the lease payments from your salary package, and the car's running costs can often be packaged too. At the end of the lease there is a residual value to pay, or you can refinance or trade the car.
Electric cars under a novated lease
Battery-electric and hydrogen cars are currently exempt from fringe benefits tax. To qualify, the car must be first held and used from 1 July 2022, and priced below the luxury car tax threshold for fuel-efficient vehicles ($91,661 in 2026–27). Plug-in hybrids lost the exemption from 1 April 2025, unless the car was already used or available for use under a financially binding commitment made before then.
In the 2026–27 Budget, the Government announced that it intends to phase down this exemption for new arrangements from 1 April 2027, and said existing leases would not be affected. The change was not law when this article was checked, so confirm the current position with the ATO or your salary packaging provider before you commit.
Balloon payments
A balloon, or residual, moves part of the loan to a lump sum at the end. Your regular repayments are lower, but you pay interest on the balloon for the whole term, so the total cost is generally higher.
In June 2026, ASIC reported on car finance. It found fees of several thousand dollars on some loans. In nearly 90% of the more than 250 repossessions it reviewed, the borrower still owed more than half the original loan after the car was sold. Choose a balloon only if you have a plan to pay it.
Buying privately
For a private sale, confirm who owns the car and check the registration. A PPSR search shows whether money is still owed on it, and many lenders will want an inspection or valuation before they lend.
Before you choose
Work out how much of the car's use will be for business.
Ask your employer whether they offer novated leasing, and through which provider.
Get the dealer's tax invoice or the private seller's details, including a PPSR check.
Decide whether you want a balloon, and how you would pay it.
Speak with your accountant about GST, deductions and fringe benefits tax.
Try the numbers
Use our Repayments calculator to compare terms, with and without a balloon.
Talk it through
Sources
Moneysmart, car loans
ATO, luxury car tax thresholds, updated 1 June 2026
ATO, GST when purchasing a motor vehicle, updated 3 June 2026
ASIC, REP 832 car finance review, June 2026
General information only. This article does not take into account your objectives, financial situation or needs. Your full financial situation and requirements must be considered before any offer or acceptance of a loan product. It is not tax or legal advice; speak with your accountant or adviser. All lending is subject to the lender's assessment and criteria, and fees and charges apply. Figures and rules are correct as at the checked date shown and can change.
Avantgarde Financial Brokerage Pty Ltd, Corporate Credit Representative 580346, authorised under Australian Credit Licence 389328 held by Connective Credit Services Pty Ltd.
