What Happens When Novated Lease Ends? Our Car Finance Specialists Explain & Assist.

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:

1. Return the vehicle to the lender and relinquish any ownership claims.
2. Pay the residual amount to the lender – this amount cannot be salary sacrificed.
3. Refinance the residual amount with a new motor vehicle loan.

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.

• Refinance Novated Lease residual at the best rates.
• Best rates on Personal Car Loans to refinance residual.
• Specialists to source the most affordable end-of-lease option.

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:

• 65.63% for a 12 month lease term.
• 56.25% for a 24 month lease term.
• 46.99% for a 36 month lease term.
• 37.5% for a 48 month lease term.
• 28.13% for a 60 month lease term.

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.

• Maintain a vehicle in good condition to retain value.
• Prepare ahead for end-of-lease obligations.
• Speak with us 2 months ahead of the residual due date.