What is the residual value on a novated lease?
The residual value is simply the final finance payment that represents the value of the vehicle at the end of the lease. 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. By novating the ownership means that during the lease you can’t create any equity or ownership in the vehicle. However, at the end of the lease you always have the option to payout the residual value and own the car.
The residual value is also called; RV, balloon payment, lump sum payment. By having the residual value your monthly payments are considerably lower than normal car finance simply because you are paying off less of the vehicle over the lease term.
How is the residual value calculated?
The ATO set guideline on residual values based on the lease term and are a percentage of the vehicle drive away cost. The table below represents the ATO minimum values. However, they also allow a 5 to10% valiance 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 3 main options; Payout 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?
The advice we always give to our customers on this question is simple; buy the right car, buy the car that suits your needs and hold it’s value. The secret to this is buying a car that is 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 are that they are purchased cheaply by the rental companies or government departments and in large volumes. This means they will be sold at lower prices and a lot more will be on the market. This reduces your chance of getting a good price.
The other secret is getting the best price you can when buying the car. A lower price means a lower residual value.
How can you get a large fleet discount?
Vehicle Solutions is listed on most car manufactures lists as a Novated Leasing provider. This means you qualify for fleet pricing. Many large companies and government employees also qualify for extra discount 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. By getting a better vehicle price you pay lower lease payments and therefore save even more.
Get a Novated Lease quote on our free, no obligation calculator and see how much you can save.
For more information please feel free to call us on 1300 990 880 any time during office hours.