Buying a Car After Divorce: Making a Choice That Fits Your Life and Your Finances

Buying a new car isn't the worst thing in the world...or is it?

Buying a car feels like a simple decision — until you actually sit down and work out how to pay for it.

Cash, car loan, novated lease… each option gets pitched as the “smart” choice, usually by someone who benefits from you choosing it.

The truth is, there’s no universally best answer. The right option depends on how you earn money, what else you’re saving for, and how comfortable you are trading flexibility for convenience.

Let’s walk through each option, the real pros and cons, and the traps people don’t always see coming.

Option 1: Paying Cash

Paying cash is the cleanest way to buy a car.

No repayments.

No interest.

No ongoing mental load.

Once it’s paid for, it’s yours.

That simplicity is powerful, especially if you value certainty and hate monthly commitments.

Cash buyers also tend to get better negotiating power at dealerships — “no finance required” still carries weight.

But here’s the part that gets missed: paying cash isn’t free. The real cost is opportunity cost.

Every dollar you put into the car is a dollar you can’t use elsewhere — whether that’s reducing your mortgage, building an emergency buffer, investing, or keeping flexibility for future life changes.

A common rule of thumb is to avoid sinking more than 20% of your available cash into a car.

That’s not a hard rule, but it’s a useful sense-check. If buying the car leaves you feeling financially tight, the stress may outweigh the benefit of avoiding interest.

Cash works best when:

• You have surplus savings after the purchase

• You value simplicity and certainty

• You don’t want another monthly commitment

  
  

Option 2: Using a Car Loan

Car loans are everywhere, and they’re often framed as “easy” money. Focus shifts quickly to the monthly repayment instead of the total cost.

Interest rates vary widely. Secured car loans might sit in the 5–9% range, while unsecured personal loans can push into double digits. On a $50,000 loan, even an 8% rate can mean around $4,000 a year in interest early on.

A loan can make sense if your cash is genuinely working harder elsewhere — for example, offsetting a mortgage or invested long-term. But that logic only holds if you’re disciplined enough not to spend the cash instead.

Loans also reduce flexibility. Missed repayments hurt. Job changes, parental leave, or income fluctuations can turn a manageable loan into a pressure point.

Loans tend to suit people who:

• Want to preserve cash flow

• Have stable income

• Are clear-eyed about total interest costs

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Option 3: How Novated Leases Actually Work

Novated leases are often misunderstood — and oversold.

In simple terms, a novated lease allows your employer to package car costs (repayments, fuel, servicing, insurance) and deduct them from your salary, often partly pre-tax. It feels seamless: one deduction, everything covered.

But underneath, it’s still a loan tied to a lease contract. You’re committing to repayments over a fixed term, usually 3–5 years, and most leases include a balloon payment at the end. That balloon can be tens of thousands of dollars — money you’ll need to pay, refinance, or cover by selling the car.

Leases prioritise convenience over flexibility. Exit early, and costs can escalate quickly.

Novated leases work best when:

• You value convenience and predictability

• You plan to keep the car for the full term

• You understand the balloon payment upfront

  
  

The EV Advantage: FBT Exemptions

One area where novated leases can genuinely shine, though, is with electric vehicles.

For eligible EVs under the luxury car tax threshold, fringe benefits tax (FBT) doesn’t apply. That exemption can make the after-tax cost significantly lower than buying the same car with cash or a loan — particularly for higher-income earners.

This is where leases stop being “just convenient” and start being strategically useful. But the maths still matters. EV savings can disappear if the car is overpriced, the lease is poorly structured, or the balloon payment is ignored.

A Critical Watch-Out: HELP Debt

If you have a HELP (HECS) debt, this is a big one.

Novated leases can reduce your taxable income, but HELP repayments are calculated on your repayment income, which includes salary before packaging. The result? You might enjoy lower tax during the year, then get hit with a bigger-than-expected HELP bill at tax time.

This catches people off guard all the time. It doesn’t mean leases are bad — it just means the cash-flow impact needs to be planned for.

So, What’s the “Best” Option?

There isn’t one.

Cash buys simplicity. Loans buy flexibility. Leases buy convenience — and sometimes tax efficiency. The wrong choice isn’t picking the “wrong” structure; it’s choosing without understanding the trade-offs.

Before signing anything, step back and ask:

• How will this affect my cash flow in 12 months?

• What flexibility am I giving up?

• What happens at the end of the contract?

  
  

A car should support your life — not quietly constrain it.

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