A novated lease is a three-way agreement between you, your employer and a financier, paid from your salary. A chattel mortgage is a business loan in your own name where you own the vehicle from day one. Which one fits depends mainly on whether you are an employee or run a business.
What is a novated lease?
Your employer takes the lease payments, and often the running costs, out of your salary under an arrangement with a leasing provider. It is only available if your employer offers salary packaging. At the end of the term you typically pay the residual to keep the vehicle, refinance it or hand it back.
What is a chattel mortgage?
A chattel mortgage is a loan for a vehicle or equipment where you take ownership from day one and the asset is the security. It needs an ABN and is arranged through a lender or broker. See chattel mortgage vs lease for how it compares with other business structures.
How they differ
| Novated lease | Chattel mortgage | |
|---|---|---|
| Who it is for | Employees whose employer offers salary packaging | Anyone with an ABN, including sole traders and companies |
| Ownership | The financier until the residual is paid | You, from day one |
| Who arranges it | Your employer and its leasing provider | A lender, or a broker comparing lenders |
| How it is paid | From your salary | Regular repayments from you or your business |
| Running costs | Can be bundled into the salary arrangement | Paid separately by you or your business |
| Tax angle | Payments from pre-tax salary; fringe benefits tax rules apply | GST, depreciation and interest may be claimable for business use |
Tax rules, including how fringe benefits tax treats certain vehicles, change over time and depend on your situation. For electric cars, the ATO explains the current rules on its electric car discount page, and the government has announced that the treatment is due to change from April 2027. Check the current rules with the ATO and your accountant before you decide.
Which tends to suit whom
- A novated lease tends to suit an employee whose employer offers it and who wants one payment through payroll.
- A chattel mortgage tends to suit a sole trader or business owner who wants to own the vehicle and use it for work.
- If you are both an employee and a business owner, the answer is less clear. Get advice on both.
Questions to ask before you choose
- What is the total cost over the full term, including fees and the residual or balloon?
- What happens if I leave my job, or sell or change the vehicle part-way through?
- Who owns the vehicle, and what are my options at the end?
- How much of the use is for work, and how does that affect the tax treatment?
The takeaway
If you are an employee with access to packaging, a novated lease is worth pricing up. If you have an ABN and want ownership, a chattel mortgage is usually the structure to compare. loan-o arranges business finance across 50+ lenders and can review any offer for free; start a free finance check with no credit check to enquire.
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Finance is subject to lender approval, lending criteria, terms, conditions, fees and charges. The information in this article is general and does not take into account your personal or business needs.
Last reviewed: 8 October 2026. This content provides general information only. It should not be treated as personal financial, tax, legal or credit advice.
Frequently asked questions.
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No. A novated lease is a three-way agreement that includes an employer, so it is for employees whose employer offers it. Sole traders and company owners usually look at a chattel mortgage, a lease or a loan instead.
It depends on your income, tax position, how the vehicle is used and the rate and fees offered. There is no single answer, so compare the total cost of each and ask your accountant about the tax effect.
With a chattel mortgage you own the vehicle from day one and the lender holds security over it. With a novated lease the financier owns it until the residual is paid at the end.
No, one vehicle has one finance structure. If you have more than one vehicle, each can use a different structure.
Both could be possible, and the better one depends on how the vehicle is used and the tax position of each income stream. Talk to your accountant and a broker before you decide.
Not sure which structure fits? Ask a loan-o specialist.
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