Car Financing and Taxation: Maximize the Benefits of Your Car Loan
You have just signed a car financing agreement and you are wondering how taxes will impact the total cost of your vehicle. Between VAT, registration tax, annual road tax and possible tax deductions, understanding the full picture helps you make the most of your Car Financing in 2026.
This guide walks you through the main taxes applicable when buying and using a vehicle, and shows you how the interest on your car loan can be partially or fully deducted when used professionally.
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The purchase price of your car is only part of the story. Fiscal rules in 2026 still have a major impact on the total cost of ownership.
By mastering the main taxes and available deductions, you can better plan your budget and optimize the financing of your vehicle, whether you use it privately, professionally, or both.
Key Taxes Linked to Car Financing in 2026
When you finance a car, several taxes apply depending on the type of vehicle, its age and the way you purchase it. These taxes are separate from the credit itself, but they influence your overall budget. Below is an overview of the main taxes you will encounter.
VAT on the Purchase of Your Vehicle
Value Added Tax (VAT) applies differently depending on whether you buy a new or a used vehicle, and on the status of the seller.
- New vehicle: you pay 21% VAT on the final purchase price.
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Used vehicle: the VAT treatment depends on who sells the car:
- Private individual: no VAT is applied.
- VAT-registered seller: either 21% VAT on the profit margin, or 21% VAT on the total price, depending on the scheme applied by the professional.
Registration Tax
The registration tax is due when your new or used vehicle is registered in your name for the first time. It is generally a one-off cost and varies according to:
- The engine capacity (fiscal horsepower) and/or power (kW) of the vehicle.
- The age of the vehicle at the time of registration.
This tax must be taken into account when planning the total budget of your car financing, as it can represent a significant initial outlay.
Annual Road Tax
The annual road tax is a recurring tax that you pay as long as the vehicle remains registered. Its amount is usually based on:
- The engine power or engine capacity (fiscal horsepower).
- The maximum authorized masses (MMA) of the vehicle.
If you change vehicles during the year, the tax already paid for your previous car is generally adjusted. The amount due for your new vehicle is offset against the surplus paid for the old one, helping to avoid double taxation for the same period.
Tax Deductions Linked to Your Car Loan
Beyond the taxes associated with the purchase and use of your vehicle, the way you finance your car can generate interesting tax deductions, especially when the vehicle is used partly or fully for professional purposes. Understanding how interest is treated by the tax authorities in 2026 allows you to optimize your net cost.
Deductibility of Interest on Your Car Loan
When you take out a car loan, each monthly instalment includes both the repayment of the principal and the payment of interest. If you choose to deduct your actual professional expenses, the interest portion linked to the professional use of your vehicle can be fully deductible.
This deduction does not apply to the entire repayment, but only to the interest part. The proportion you can deduct is calculated according to the percentage of professional use of your vehicle (for example, based on mileage logs or a realistic estimate accepted by the tax authorities).
This mechanism makes car financing particularly interesting for self-employed workers, liberal professions, and employees who use their car regularly for work-related journeys.
Illustrative Example (Updated for 2026)
Imagine you take out a car loan of 7,500 euros over 36 months at an annual effective rate of 5.75%. Over the year, the total interest taken into account amounts to 309.38 euros according to the amortization schedule attached to your contract.
If you estimate that 70% of your car expenses are professional, you can deduct:
70% of 309.38 euros = 216.57 euros of deductible interest for the income year in question.
The exact figures will depend on your own loan, but the principle remains the same in 2026: the higher the professional use and the amount of interest, the greater the potential tax deduction.
Why Combine Car Financing with Smart Tax Planning?
Structuring your car purchase with the right financing and a clear understanding of taxation allows you to reduce your monthly burden and optimize your total cost over time. Here are the main advantages of approaching your Car Financing with a tax-aware strategy in 2026.
Optimized Budget Management
By anticipating VAT, registration tax and annual road tax, you avoid unpleasant surprises and integrate all costs into your global car financing plan, keeping your budget under control over the entire duration of the loan.
Tax Savings on Interest
The possibility to deduct interest linked to the professional use of your vehicle reduces the net cost of your car loan. Over several years, these tax savings can represent a substantial amount, especially for commuters and self-employed workers.
Better Investment Decisions
Understanding the tax impact of your vehicle choice (engine power, age, type of vehicle) helps you select the car and financing option that best match your professional and private needs, while remaining fiscally efficient in 2026.
Plan Your Car Financing and Taxation with Confidence
Whether you are considering a new or used vehicle, taking the time to understand taxes and possible deductions will help you choose the most efficient financing solution. Simulate your Car Financing and get a clear picture of your future budget.
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