A number of options are available to finalise your Novated Lease and it can be advisable to start considering your end-of-lease obligations well ahead of the due date. As specialists in motor vehicle financing, we work with customers to consider all their options, including a low-rate refinancing solution. If your Novated Lease termination date is approaching or if you are interested in arranging this type of motor vehicle finance, speak with our expert brokers.
The many benefits of Novated Leasing can predominate the process of taking on this form of motor vehicle finance. But from the outset, astute lessees will also be paying close attention to what happens when the Novated Lease ends.
Ownership of the vehicle is not transferred to the employee until all payments are finalised to the lender. Being aware of end-of-lease obligations and post-lease options from the outset, may contribute to a more streamlined end of Novated Lease process.
A Novated Lease is a commercial credit facility which involves an agreement between an employee, their employer, and a lender for the purchase of a motor vehicle.
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The employer takes on the lease for the employee who sacrifices a portion of the pre-tax salary to cover the lease and other vehicle expenses. Both employee and employer can realise tax benefits from this type of vehicle financing.
Novated Leases include fixed monthly lease payments over a fixed term, and a residual value as determined by the ATO regulations. This residual is a percentage of the original purchase price and remains fixed at that percentage over the leasing term.
When the fixed term ends and all monthly payments are finalised, the residual needs to be finalised. When this is completed – all obligations met, the ownership of the vehicle is transferred to the employee.
Once ownership has been transferred, the employee is responsible directly for all expenses for the vehicle and the salary sacrificing concludes.
A number of options are available to meet end-of-lease obligations. Speak with one of our experts about how we may assist you.
Our guides offer quick comparisons and simple explainers to help you progress through the financing process with confidence.
At the end of a Novated Lease, when the final monthly payment is made, the residual value needs to be finalised in order to clear the obligations to the lender.
There are three options available to finalise a Novated Lease residual:
The residual is set when the Novated Lease is arranged so parties are fully aware, well in advance, of the amount due at the end of the lease and when it is due. Planning ahead by deciding how the residual will be finalised can contribute to a more well-informed and streamlined end of lease procedure.
As specialists in motor vehicle financing, we assist parties to a Novated Lease at all stages – in securing a cost-effective solution at the outset, and where refinancing is required to finalise the residual. Finalising your Novated Lease residual with refinancing can be an extremely workable and attractive option. As the residual cannot be made via salary sacrificing, the employee can consider a Secured Car Loan or Unsecured Personal Loan to finalise the payment and take ownership of their vehicle.
Contact us for our low rates on car loans to finalise Novated Lease residual.
When considering the next steps after a Novated Lease ends, parties should consider any potential costs and savings with the end-of-lease options available to them.
Returning the vehicle to the lender may be seen as a neutral outcome or a potential loss. The residual value is deemed to be in line with the value of the vehicle at the end of term. As such, there may be no potential gain if the residual is paid-out and the vehicle then sold. However, some may view this option as losing the equity built up by paying off a vehicle over some time and losing the opportunity to use the vehicle as a trade-in on a new vehicle.
With finalising a residual from post-tax funds, employees will need to have that amount in savings or take on a personal loan. Planning ahead for this option over the term of the Lease – setting aside funds on a regular basis which may be earning interest, can provide a streamlined end-of-lease process. Where this is not a workable option, the employee may risk losing the vehicle that they have worked towards owning over the leasing term.
Where this is an option, employees may opt to pay-out the residual and keep the vehicle or trade it in on a new model, using the equity to reduce the purchase price.
Taking on a personal loan to cover the residual value can provide a very attractive option. As the residual is in line with the expected value of the vehicle, the vehicle may be accepted as collateral for a Secured Car Loan. The loan would be priced at used vehicle interest rates, but our rates are highly competitive.
Considerable equity will already be built-up in the vehicle over the term of the lease. This can also assist applicants to use the vehicle as security against the loan and be offered more attractive interest rates. The costs involved in taking on new finance should be considered with refinancing a residual. When refinancing a residual, the personal credit profile of the employee would form an integral part of the application assessment and the rates and offers made by lenders.
For a quote on the best rates and options to refinance a Novated Lease residual, contact us.
While the residual value is due for payment at the end of a Novated Lease, the amount is set at the beginning – when the lease is established. It is the balloon payment and included in leases to reduce the monthly payments. The Australian Taxation Office sets the minimum percentages for residuals according to the Taxation Rule IT 28 . The amount varies with different leasing terms. The value represents the expected value of the vehicle at the end of that term which is typically 50-60% of the original purchase value depending on the term.
The minimum percentages for residual as set by the ATO are:
When deciding which vehicle to purchase and on the preferred leasing term, buyers can work out the residual with these percentages and use our Vehicle Finance Calculator to see estimated monthly repayments.
The amount of the residual can impact end-of-lease decisions and taking this into consideration when purchasing a vehicle with a salary sacrificing Novated Lease may simplify those critical decisions.
Preparation for the end of a Novated Lease can start as soon as the lease is set-up. Maintaining the vehicle in top condition can be significant in ensuring it retains its value over the leasing term. If not well-maintained, the vehicle may be valued below the amount of the outstanding residual at the end of the term. Resulting in potential issues in refinancing the full amount.
Lessees can also prepare well ahead by setting aside funds on a regular basis to meet the residual amount when due. They can also maintain a good credit profile to ensure the best interest rate when refinancing residuals.
It can be advisable to start considering the options well ahead of the due date for the residual. 2 months ahead of the date, contact us to discuss quotes for refinancing to see if that is the most attractive option.
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THE COMPARISON RATE IS CALCULATED ON A SECURED LOAN OF $30,000 FIXED FOR A TERM OF 5 YEARS, NEW GOODS, EFFECTIVE 20/12/2024 AND SUBJECT TO CHANGE. WARNING: THE COMPARISON RATE IS TRUE ONLY FOR THE EXAMPLES GIVEN AND MAY NOT INCLUDE ALL FEES AND CHARGES. DIFFERENT TERMS, FEES OR OTHER LOAN AMOUNTS MAY RESULT IN A DIFFERENT COMPARISON RATE.
No. Under regulations, salary sacrificing cannot be utilised to finalise a lease residual.
At the end of a lease, lessees may hand the vehicle back to the lender; payout the residual to retain ownership; or refinance the residual.
Where employees seek to retain ownership of the vehicle, they may seek to finance a residual with a Secured Car Loan or an Unsecured Personal Loan.
An employee takes ownership of a vehicle purchased with Novated Lease only after all obligations including the residual are finalised.
Where a residual is financed, the interest rate would be based on used vehicle rates. Where the employee seeks the finance, the rates would be based on personal car loan rates not commercial car rates.
The residual due at the end of a lease is a percentage of the original value as set by the ATO. This is known when the lease is set-up.
When a lease ends, lessees must decide whether to return the vehicle to the lender, make the residual payment out of pre-tax funds or refinance. When the amount is finalised with the lender, the employee takes ownership of the vehicle.
The end of a Novated Lease is when the term concludes, and the residual is finalised.
The lease residual value is a balloon payment due at the end of the term. It is set by the ATO.
When the lessee finalises the residual with the lender, they may then sell or trade-in the vehicle. Arrangements may be made with the lender for the residual to be paid-out after a deal on the new vehicle has been made.
