What is the residual value on a novated lease?
The novated lease residual value is the final finance payment representing the vehicle’s value at the lease’s end. A Novated Lease needs a residual value because you have novated the ownership (payments of the lease and running costs) to your employer, which allows you to save tax. You can’t create any equity or ownership in the vehicle during the lease by novating the ownership. However, at the end of the lease, you always have the option to pay the residual value of the novated lease and own the car.
The residual value is RV, novated lease balloon payment, or lump sum payment. With the residual value, your monthly payments are considerably lower than standard car finance simply because you pay off less of the vehicle over the lease term.
How is the residual value calculated?
The ATO sets guidelines on residual values based on the lease term, which is a percentage of the vehicle drive-away cost. The table below represents the ATO minimum values. However, they also allow a 5% to 10% variance above these values.
12 Month Lease – 65.63%
24 Month Lease – 56.25%
36 Month Lease – 46.88%
48 Month Lease – 37.5%
60 Month Lease – 28.13%
What happens at the end of the lease and my residual value comes due?
At the end of the lease, you always have three main options: pay out the residual value and own the vehicle, re-lease the vehicle over a further term and continue to save tax, or finally, sell the vehicle and pocket the difference between the residual value and what you sell the car for tax-free.
How can I ensure that the residual value is lower than what I can sell or trade my car for at the end of the lease?
Our advice to our customers on this question is simple: buy the right car, buy the vehicle that suits your needs and holds its value. The secret is buying a car not purchased by large fleets or governments. For example, look at what is being rented by large car rental companies or government departments. The issue with these cars is that they are purchased cheaply by rental companies or government departments and in large volumes. This means they will be sold at lower prices, and more will be on the market. This reduces your chance of getting a reasonable price.
The other secret is getting the best price when buying the car. A lower price means a lower residual value.
How can you get a large fleet discount with residual value?
Vehicle Solutions is listed on most car manufacturers’ lists as a Novated Leasing provider. This means you qualify for fleet pricing. Many large companies and government employees also qualify for discounts through a Novated Lease. To save even more, go to www.motorbuys.com.au. Motorbuys is our online new car buying site that allows you to source the best new car prices without the pressure and stress of negotiating in person with multiple dealerships. You pay lower lease payments and save even more by getting a better vehicle price.
Get a Novated Lease quote on our free, no-obligation calculator and see how much you can save.
For more information, please call us on 1300 990 880 any time during office hours.
Frequently Asked Questions
What is the residual value in a novated lease?
The residual amount in a novated lease represents the last financial payment, which reflects a conservative estimated vehicle value at the lease’s end. It is commonly known as the balloon payment, a lump sum payment, or RV. This value allows you to keep your monthly payments lower since you are paying off less of the car during the lease term. You can buy the vehicle at the lease’s end by paying the outstanding value in cash, refinance the residual or trade the vehicle in and the dealership will pay the residual.
How is the residual value calculated for a novated lease?
The residual value is determined as a proportion of the vehicle’s buy-away price according to the lease term set by the ATO. Here are minimum residual percentages according to lease term:
12-Month Lease: 65.63%
24-Month Lease: 56.25%
36-Month Lease: 46.88%
48-Month Lease: 37.5%
60-Month Lease: 28.13% Users can also have 5% to 10% variation above these values according to the ATO minimums.
What are my options at the end of the lease when the residual value is due?
Generally, there are three options available upon completion of a novation lease:
1. Pay out the residual and own the vehicle.
2. Re-lease the vehicle for another period to maintain tax-saving benefits.
3. Sell the vehicle and retain the difference between the sale proceeds and residual value tax-free.
How can I ensure my vehicle’s residual value is lower than its market value?
Firstly the ATO set residuals value very conservatively to ensure limited risk. However make sure you buy a vehicle that holds its value, most reputable long term vehicle brands will provide this and provide a good chance you will sell the vehicle well above the residual value. Moreover, a better-priced purchase of a vehicle reduces the residual value since the ultimate value of the vehicle is directly linked with the original price. Talk to one of ow Novated Leasing Specialists who can assist with fleet disconts on most new vehicles.
How can I get fleet discounts on my novated lease vehicle?
Vehicle Solutions offers novated leases at fleet pricing rates, which can help cut costs on a car purchase. Further savings can be achieved using the online platform Motorbuys, which allows comparison of best vehicle pricing without the inconvenience of negotiating with multiple dealerships. When purchasing and leasing a vehicle, the lower the price, the lower the lease payments, resulting in a lot of savings overall.
