What Happens at the End of a Novated Lease?

Find out what your options are for the end of your novated lease, such as whether you can sell or keep your car, right here with Savvy!
Published on December 16th, 2020
  Written by 
Thomas Perrotta
Thomas Perrotta is the managing editor of Savvy. Throughout his time at the company, Thomas has specialised in personal finance, namely car, personal and small loans, although he has also written on topics ranging from mortgages to business loans to banking and more. Thomas graduated from the University of Adelaide with a Bachelor of Media, majoring in journalism, and has previously had his work published in The Advertiser.
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   Reviewed by 
Bill Tsouvalas


Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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A novated lease provides a unique way to finance a car while incorporating salary packaging benefits. As your lease term nears its conclusion, understanding the available options is crucial for making informed decisions about your next steps.

You can find out all about what happens once your novated lease ends right here with Savvy. Learn about whether buying your car, selling it or extending your lease are viable options for you right here with us today!

Purchase your car outright

Reaching the end of your novated lease presents the opportunity to purchase your car outright. This means that you take over the full, unencumbered ownership of the vehicle you've been driving throughout the lease term.

The final purchase price, also known as the residual value, is predetermined in your lease agreement. This amount reflects the car's depreciated value at the lease end. To acquire full ownership, you'll need to pay the residual value (make a balloon payment) to your novated lease provider.

This payment can be made through various methods, including using your accumulated savings from salary packaging benefits throughout the lease term or securing separate financing.

Buying your car out from a novated leasing arrangement means you won’t need to make any further payments and you’ll own it unconditionally, but all running costs must now be paid with after-tax money.

Extend your current lease with the same car

Extending (or refinancing) your current lease allows you to continue using the same car beyond the initial lease term. This option might be suitable if you're comfortable with your current vehicle and prefer to avoid the hassle of acquiring a new car.

Extension options depend on your specific lease agreement and may require negotiation with your novated lease provider. This means the monthly lease payments and other terms will be renegotiated for the extended period to account for the car's current value and market conditions.

This option is handy for those who are happy with their car and want to continue accessing the tax benefits of novated leasing, as well as reducing the final residual payment substantially. However, your car will need to meet leasing criteria to qualify for an extended lease, such as being less than 15 years old at the end of the term.

Sell or trade in your car to cover the residual

At the end of your lease, you might explore the possibility of selling or trading in your current car to cover its residual value. If you’re trading in, the leasing company or a trusted dealership will assess the value of your car based on its current condition, mileage and market value. From there, the sale or trade-in can be arranged.

If the sale doesn’t cover the full residual value, the remaining difference needs to be settled through other means, such as using your savings or securing additional financing. However, if the sale is more than the residual, you can receive the cash yourself.

Once you’ve made the residual payment for your novated lease, you can elect to either establish a leasing arrangement with a new car and/or leasing company or purchase a car through other means.

It’s a very simple way to upgrade your vehicle and start fresh, either with or without a novated lease, but any cash you receive from the sale of your car can’t be included in a new lease to reduce its cost.

What should I do at the end of my novated lease?

Ultimately, deciding what to do with your lease depends on your specific circumstances, which will be different for each person. If you enjoy the tax benefits and other advantages of novated leasing, as well as your ability to refresh your vehicle every few years, extending your agreement or taking out a new one may be your preferred option.

However, if you value owning your car outright and not having to worry about making any payments to another company to continue using it, buying or selling it at the end of your lease may be the choice you make. It’s important to consider your options carefully, such as between novated leases and car loans, before coming to your decision on what to do at the conclusion of your lease.

Working out your residual payment

Your residual value is set by your leasing company. This will be a calculation of what your car is worth at the end of the term, factoring in depreciation. While there’s no set maximum for residual values, the Australian Taxation Office (ATO) has set minimum required values for these terms. These are:

Lease term Minimum residual value %
12 months
24 months
36 months
48 months
60 months

Therefore, by multiplying your car’s purchase price by the percentage set for your specific term, you can determine the minimum payment you’ll have to make at the end of your lease. For example, a 12-month novated lease for a $30,000 car would come with a minimum payment of $19,689, while a five-year lease’s payment would drop to at least $8,439.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

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