7 Mar 2024

What happens at the end of a Novated Lease?

If your Novated Lease is coming to an end, you might be wondering what happens next. 
Whether your Novated Lease was for two, three, four, or five years, your options are exactly the same: you can pay out your lease and keep your car, extend your lease by refinancing, or even upgrade to a new car.

We’ve put together a guide to your options, and what happens in each one.

End Of Novated Lease: 3 Options

Option 1: Pay out your lease and keep your car

If you want to keep your car at the end of your Novated Lease (and own it outright), you can. Once the last finance repayment has been made on your lease, you can choose to pay out the residual value (sometimes referred to as a “balloon” payment) to the finance company, plus GST. And, as the vehicle is already registered in your name, you don’t need to transfer ownership with the relevant state or territory roads authority.

How it works

The process for paying out your Novated Lease is simple: you'll receive a payout letter 28 days before your lease is due to end that contains all the details to arrange payment of the residual value.

The residual value represents the value of your car and is set by the Australian Taxation Office (ATO) based on a percentage of the car’s value at the outset of your lease. The residual value of your car decreases each year of your lease. Check out the table below to see the ATO residual value sliding scale:

When you’ve made your final payment on your lease agreement, your Novated Lease will be terminated. At that point, any additional services associated with your lease – such as insurance, a fuel card, and any service and maintenance costs – will also be suspended. You may also need to make a final payment to your employer.

Pros

• The most obvious pro of buying your car is you’ll own it outright. On the flip side, you’ll need to make sure you’re in a financial position to make your residual payment.

Cons

• You’ll lose the GST and tax savings that are available with a Novated Lease
• You won’t have the convenience of cash-free fuel card fills ups or enjoy services such as having your rego and insurance paid for you. 

Option 2: Extend your lease by refinancing

Your second option when your Novated Lease comes to an end is to extend your lease, by refinancing. This is called a re-novation.

How it works

You’ll receive a quote for refinancing. This quote will be based on the residual value of your car, meaning your payments will be less (depending on your lease term) than they were in the original lease. It’s important to note that the maximum Novated Lease term for any vehicle is 12 years (when the car reaches 12 years’ old).

Once you’ve accepted your quote for your new Novated Lease, you may be required to complete a credit check before you receive your new loan documents. When the paperwork is done and your existing lease comes to an end, your finance company will process the settlement of your lease and the new one will start, along with all the services that are included in your Novated Lease.

Pros

• One major benefit of refinancing is you can keep driving the car you love with lower lease payments, as the new lease amount is based on the current residual value of your car, and you won’t need to make a lump sum repayment. 
• You’ll also continue to get the tax benefits and additional services offered by a Novated Lease. 

Cons

• However, you won’t own your car and this option doesn’t give you the option to upgrade to a new car with all the features and benefits of a new car – so if this is important to you, it’s something to consider. 

Option 3: Upgrade to a new car

Ready for a new car? You could use the end of your Novated Lease as an opportunity to upgrade to a newer model.

How it works

If you choose this option, you’ll terminate your existing lease and enter into a brand new Novated Lease on a new car.

As in option one, your finance company will send you a payout letter, and once you’ve made your final payment on your lease agreement and paid out the residual value on your existing car, your Novated Lease will be terminated, if there is a running cost budget deficit, this will be deducted by your employer. You can then choose to sell your old car privately or send it to a vehicle auction.

At the same time, FleetPartners can provide you with a lease quote on a new car, and you can start the Novated Leasing journey again and enjoy all the savings and conveniences a Novated Lease has to offer.

Pros

• Taking out a new Novated Lease means you’ll continue to get all the tax savings and additional services – as well as a brand new car.

Cons

• However, it should be noted you won’t be able to use the trade-in value of your old car to bring down the cost of your new Novated Lease payments. 

Weigh up your options

So, to summarise your options are:

No matter whether you choose to pay out your lease and keep your car, extend your lease, or upgrade to a newer model at the end of your lease, it’s important to carefully consider the pros and cons of each option before you make a decision. If you need help or more information on these options, the FleetPartners team is here to guide you through the process.

If your Novated Lease is coming to the end and you want to clarify your options, simply call 1300 666 001 to talk to a member of the FleetPartners team.