Car finance options explained
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Car finance types | Secured and unsecured loans | Chattel mortgages | Novated leases |
Choosing the right option
Whether you're buying a car for personal use, business or through your employer, there are several ways to finance it. Each option comes with its own features, benefits and considerations. This guide breaks down three common car finance types – secured and unsecured loans, chattel mortgages and novated leases - to help you choose what’s right for you.
Comparing car finance types
Here’s a quick overview of how each option stacks up:
| Finance type | Ownership during term | Security required | Suitable for | Key benefits |
|---|---|---|---|---|
| Secured loan | You own the car | Yes (the car) | Most personal buyers | Lower interest rates, higher limits |
| Unsecured loan | You own the car | No | Buyers with strong credit | No asset tied to loan |
| Chattel mortgage | You own the car | Yes (the car) | Business owners, sole traders | Potential tax benefits, flexible terms |
| Novated lease | You lease the car | No | Employees with salary packaging | Tax savings, bundled running costs |
Secured and unsecured loans
These are the most common types of car loans for personal buyers. The main difference is whether the loan is backed by an asset.
Secured loans
Unsecured loans
Chattel mortgages
A chattel mortgage is a type of business car loan. It’s designed for people who use their vehicle primarily for work - including sole traders, small business owners and self-employed professionals.
How it works
The lender provides funds to buy the car, which is then used as security for the loan. You own the car from day one, and the lender registers their interest on the Personal Property Securities Register (PPSR). Once the loan is repaid, the registration is removed.
Possible benefits
- Lower interest rates compared to unsecured loans
- Flexible repayment options, including balloon payments
- Potential tax benefits, such as claiming depreciation and interest costs
- GST credits may apply if you're registered for GST
Things to consider
Novated leases
A novated lease is a salary packaging arrangement that allows you to lease a car through your employer. It’s a three-way agreement between you, your employer and a finance provider.
How it works
Your employer makes lease repayments on your behalf using your pre-tax salary. You don’t own the car during the lease term - you pay to use it. At the end of the lease, you can pay the residual value to own the car, renew the lease or upgrade.
Types of novated leases
- Fully maintained: Includes running costs like fuel, servicing, insurance and registration
- Non-maintained: Covers only the lease repayments — you pay running costs separately
Possible benefits
- Potential tax savings through salary sacrifice
- No GST on the car purchase or running costs
- Simplified budgeting with one regular payment
- Easier upgrades at the end of the lease
Things to consider
- You may need to pay the residual value to keep the car
- Fees and fringe benefits tax may apply
- If you change jobs, you may need to pay out the lease or transfer it
- Not available to self-employed individuals
Choosing the right option for you
Here’s a quick overview to help match each finance type to your individual situation:
Personal use:
Business use:
Employee salary packaging:
Each option has its own benefits, so it’s worth considering your income, employment type, tax position and long-term plans before deciding which option is right for you.
Need help finding the right fit?
Contributor | Andrew Gamble, Head of Sales - Asset Finance
Andrew brings more than 20 years of experience in the finance industry. His strategic vision, leadership and his customer centric approach has contributed to the significant growth of Pepper Money's Asset Finance business. Read more.
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Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
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