Key Takeaways
- At lease end you’ve got three choices: when your novated lease finishes, you generally have three main options: buy the car outright (pay the residual value), refinance the residual, or upgrade to a new lease with a different vehicle.
- What “residual” means: the residual (or balloon payment) is a pre-agreed value of your car at lease start, what you'd need to pay to own it at the end. It follows ATO minimums.
- Trade-in or equity scenario: if your car’s market value is higher than the residual, you can keep the surplus when you sell or trade in. If it’s lower, you’ll need to cover the shortfall.
- Tax and finance implications: paying out the residual ends the tax-benefits of the novated lease for running costs; refinancing or doing a new lease may preserve them.
- Plan ahead: knowing your lease term, residual value and car condition helps avoid surprises. Maintenance, damage, high kilometres etc. can affect resale/trade-in value.
At the end of a novated lease, you generally have three main options:
1. You can buy the car outright
Every novated lease includes a residual value, a pre-agreed amount that reflects what the car is expected to be worth at the end of the lease. If you want to keep the car, you can pay this residual amount and take full ownership.
Good to know:
- The residual is set by ATO guidelines and varies based on your lease length (e.g. ~28.13% of purchase price after 5 years).
- It’s not negotiable, even if the car’s market value is lower or higher than the residual.
- You'll need to pay this from your after-tax income, since the novated lease and its tax benefits end here.
Common scenario:
You’ve looked after your car, it's in great condition, and you don’t want to give it up. If you have the funds available, buying it outright can be a great value move.
2. You can refinance the residual
Want to buy out the car, but don’t want to pay the residual in one go? You might be able to roll it into a new loan or lease, effectively spreading out the cost over time.
Good to know:
- You’ll need to qualify for a new finance product (credit checks apply). We can help you with this.
- Refinancing may come with different interest rates or conditions than your original lease.
- This does not extend the novated lease or its tax benefits unless it’s a brand new novated lease arrangement.
Best for:
Drivers who want to own the car eventually but need to manage cash flow, or who plan to keep the vehicle for several more years.
3. You can upgrade to a new lease
This is one of the most popular options. You trade in your current vehicle and start fresh with a brand-new novated lease, or sell the car privately to cover its residual and start a new novated lease.
Good to know:
- If the market value of your car is higher than the residual, you can keep all of that profit.
- If it’s lower, you’ll need to cover the gap.
- You'll get a new car, a new lease term, and continue enjoying the tax savings of salary packaging.
Example:
If your residual is $15,000, and you actually sell the car for $18,000, you could use that $3,000 equity toward your new lease. If it’s only worth $13,000, you’ll need to cover the $2,000 shortfall.
Common Situational Caveats
- Excess KM / Wear & Tear: These don’t typically apply the way they do in standard car leases. You’re responsible for the originally agreed residual regardless of car condition. Major damage or poor condition could reduce resale value and affect your payout options.
- Selling the Car Privately: Some drivers choose to buy out the residual and resell the car privately, often at a profit if the residual was conservative and the market value is strong. This can be a smart move with popular vehicles.
- GST & Tax Considerations:
- If you buy the car at the end, GST usually applies to the residual.
- This residual amount can’t be salary packaged, so it’s a personal expense.
- What happens if the car is worth less than the residual?: You’ll need to cover the difference if you want to sell or trade in. This is why regular maintenance, insurance, and realistic lease terms matter.
