Understanding Novated Lease Residual Value

Novated vehicle leasing in Australia offers a range of benefits, including tax advantages and convenience for anyone considering salary sacrificing. However, when considering a novated lease, it’s important that you understand the concept of ‘residual value’ and its role in the overall novated leasing process.

So what exactly is residual value in a novated lease?
Residual value is the balance that remains to be paid at the end of the novated vehicle lease. Also commonly referred to as a balloon payment, it represents the estimated worth of the vehicle at the conclusion of the lease, allowing for factors such as depreciation and usage.

What happens with the residual value at the end of the lease?
At the end of the lease term, you have several options regarding the residual value:

  1. Refinance or Extend: If you want to continue using the vehicle, you can refinance or extend the lease, including the residual value.
  2. Purchase: Another option is to purchase the vehicle outright by paying the residual value in a lump sum. You become the owner of the vehicle.
  3. Trade-in: Alternatively, You can choose to trade in your current car and upgrade to a new one. Fleet Network offers a service to make this transition as smooth as possible.

The benefits of residual value:
There are three main benefits associated with residual value:

  1. Lower Lease Payments: By incorporating a residual value into the lease structure, your monthly lease payments can be significantly reduced compared to normal car loan.
  2. Vehicle Equity: At the end of your lease term, if the market value of your vehicle is greater than the residual amount owing, You would receive the difference back to you in cash.
  3. Flexibility: The residual value in a novated lease provides flexibility at the end of the lease term, giving you the option to choose whether you want to retain, trade-in, or upgrade your vehicle.

In summary, ‘residual value’ is the estimated value of the vehicle at the end of the lease term and gives you flexibility and financial advantages. If you’d like to know more about the benefits of salary sacrificing in Australia or would like a quote on a novated lease with Fleet Network, we’re just a phone call away.


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