Why Locking in a Novated Lease Could Save You Money as Interest Rates Rise

Over the past few years, Australians have experienced a period of rapidly changing interest rates. Rates rapidly rose after the pandemic, and while many of us hoped that they would be trending down, the outlook from economists and the Reserve Bank of Australia suggests that borrowing costs may remain elevated for some time. For Aussie employees and families considering a new vehicle, this environment makes now a particularly smart time to consider a novated lease and lock in a competitive interest rate before further increases occur.

Interest Rates Are Still Under Pressure

So far in 2026, the RBA has increased the cash rate twice by a total of 50 basis points to 4.10 per cent, citing ongoing inflationary pressures and strong demand in the economy.

Inflation remains a key concern. The RBA forecasts that headline inflation could reach around 5 per cent by mid-2026 with the war in the Middle East further exacerbating inflation. This is significantly above the Reserve Bank’s long-term target of 2-3% for inflation. Inflation seems to be accelerating again this year and we could be in for another round of cost-of-living pressures across the country.

Major banks seem to be unanimously in agreeance that additional rate rises could occur in the coming months as policymakers try to control price growth across the economy. For families and workers, this means financing costs for everything, such as mortgages, personal loans and car finance, could continue to rise.

Car Finance Rates Have Already Increased

The impact of rising rates is already visible in the vehicle finance market. The average Australian car loan interest rate has climbed to around 7.25 per cent per annum as of early 2026, up from roughly 7.12 per cent only a few months earlier.

Some lenders report even higher effective rates, depending on the borrower’s credit profile and whether the broker takes a VBI. In fact, the average fixed-term personal loan rate across Australia has been estimated at about 9.68 per cent per annum in recent comparisons.

Anyone financing a vehicle today is already paying significantly more than just 12 months ago. If further rate increases occur which is looking like an inevitability, future borrowers could and will face even higher repayments.

Why a Novated Lease Can Make Sense Now

This is where a novated lease can become particularly attractive.

A novated lease allows employees to finance a vehicle using their pre-tax salary, which can reduce overall taxable income and potentially deliver substantial savings to the employee over the life of the lease. Unlike a traditional car loan that is paid entirely from after-tax income, a novated lease helps offset the impact of rising interest rates through tax advantages. A novated lease also means the driver can claim back the GST on the purchase price and running costs of the car.

Another advantage is that lease rates are typically fixed for the term of the agreement. By entering a novated lease today, you may be able to lock in a finance rate before any further increases occur in the market. If interest rates continue rising, that fixed rate could end up being significantly cheaper than financing a vehicle in the future.

Typical novated lease interest rates in Australia generally fall within a competitive band of around 6.5 per cent to 9.65 per cent. This, of course, depends on numerous factors such as:

• Type of vehicle – EVs generally have a lower interest rate than petrol vehicles.
• Credit profile – Rates may vary depending on the state of your credit profile.
• Leasing provider – Some providers take a VBI or may have additional fees that aren’t disclosed in the brokerage amount.

Locking in a rate today could provide valuable protection against future increases.

The Bottom Line

With inflation still above target and the Reserve Bank strongly signalling that interest rates may continue to rise in 2026, the cost of borrowing is likely to stay high across Australia. Vehicle finance is no exception.

For employees considering their next car, a novated lease offers a smart way to navigate this environment. By locking in a rate today and taking advantage of pre-tax salary packaging, you may be able to reduce the overall cost of vehicle ownership even as interest rates rise.

At CarBon Novated Leasing, we help Australian employees access competitive lease rates and simplify the process of getting into a new vehicle. We work through your running costs and ensure you aren’t left with any nasty surprises. With CarBon, you can relax knowing you’ll get end-to-end assistance across the life of your lease. In a rising interest rate environment, acting sooner rather than later could make a significant financial difference.

To learn more about how a novated lease can help you manage rising interest rates, contact one of our friendly WA CarBon team members today.