Should I refinance or pay my novated lease balloon payment?

What happens at the end of a novated lease?

Put simply, at the end of your novated lease, you need to pay the residual value.

What is the residual value?

The Australian Taxation Office (ATO) says that the cost of a car lease must only cover a certain portion of the estimated value of the car at the end of the lease. The longer the lease, the lower the residual value.

The ATO uses these percentages to determine the minimum residual values:

It's confusing, so let's throw in an example.

If I were to take out a novated lease for the next 4 years for a $30,000 car, the residual value of the car would be worked out as 37.50% of $30,000.

That means the residual value is $11,250 - that's the amount you would need to pay at the end of your lease.

What options do you have at the end of your novated lease?

1. Making a balloon payment

If you've got the money saved, you could pay the residual value outright. The shorter your novated lease was and the more expensive the car, the higher that balloon payment would be.

• You'd own the car once you've made that payment.

• It's an expensive cost to bear

2. Start a new lease

You could opt to extend your lease and keep hold of the car a little longer while taking advantage of all the tax benefits.

• Continue on the tax benefits train

• You still don't technically own the car so you can't modify or damage it

3. 'Refinance' with a personal loan

If you don't have the money but you still want to own the car, you might be able to take out a personal loan to pay for the residual. You'd then be making repayments to the loan instead using your post-tax salary.

• You'd own the car without the upfront expense
• You're no longer receiving tax benefits and you're paying towards a big loan

4. Sell the car to pay the residual

You could sell the car and use the money to pay for the residual. If you sell it for above the residual, you get to keep the profit! But you'd still need to make up the rest of the cost if you sold it below the residual value.

• You could pay for the residual and keep some profit
• You could still end up owing money and you won't have a car

Questions to ask yourself:

How much is your balloon payment? The amount you have to refinance will affect whether it’s worth refinancing or not.

How long are you planning to keep your vehicle for? The length of time you’re planning to keep your car also needs to be thought about. You should consider the age of the vehicle, the amount of the balloon payment and whether it can be repaid in that time.

Are you happy with your current vehicle? If you take out another lease, you will be able to get a new vehicle. However, you may want to keep your current vehicle. This is another factor to consider.


Our expert says
"If you can't pay off the residual amount with your own savings, be wary of using a personal loan. This should only be an option in circumstances where you really need to end the lease and don't have the money saved up. This is because of the amount of interest you'll end up paying and the post-tax payments. If you have the option to extend or start a new lease this may be better for you. You won't be paying interest and you'll get the income tax benefits. But remember that there'll be another residual amount to pay at the end of this lease period."
Rebecca Pike
Senior writer

Make use of the tools available to you

When deciding whether or not to refinance, you can use finder.com.au’s tools to help make a better informed decision.

Compare personal loans. Compare rates and fees and read through reviews from banks and other lenders to see if refinancing will be worth it.

Novated lease calculator. You can use the novated lease calculator on this page to find out the overall costs of your lease.

Use a personal loan calculator. Calculators including borrowing power, comparison and repayment are available on this page to help you find out the costs of different personal loans.

Deciding whether or not to refinance your novated lease balloon payment doesn’t have to be a complicated decision. With the right tools at your fingertips, you can make the right choice for your needs.

Compare refinancing options now

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IMB New Car Loan Fixed1 - 7 Years $2,000 - $125,000	Interest Rate (p.a.) 6.24%	Comp. Rate (p.a.) 6.59%	Application Fee $274.78	Monthly Fee $0	Monthly Repayment $619.01	Go to siteMore Info Compare	You'll receive a fixed rate of 6.24% p.a. A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one that's up to two years old.
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loans.com.au - New/Demo - Variable Rate Variable3 - 7 Years $5,000 - $150,000	Interest Rate (p.a.) 6.24% to 7.39%	Comp. Rate (p.a.) 7.37% to 8.5%	Application Fee $400	Monthly Fee $8	Monthly Repayment $630.83	Go to siteMore Info Compare
OurMoneyMarket Used Car Loan ($5,000-$100,000) Fixed1 - 7 Years $5,000 - $100,000	Interest Rate (p.a.) 6.57% to 18.99%	Comp. Rate (p.a.) 7.19% to 21.78%	Application Fee $250 min.	Monthly Fee $0	Monthly Repayment $622.82	Go to siteMore Info Compare
Stratton Finance Used Car Loan Fixed1 - 7 Years $10,000 - $300,000	Interest Rate (p.a.) 6.52% to 18%	Comp. Rate (p.a.) 6.95% to 23%	Application Fee $395	Monthly Fee $0	Monthly Repayment $625.27	Go to siteMore Info Compare	You'll receive a fixed rate loan from 6.52% p.a. with a comparison rate of 6.95% p.a. A used car loan of up to $300,000 with quick approval times and balloon payment options.
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Frequently asked questions about novated lease residual payments

• How much are novated lease residual payments?

  The amount you need to pay as a residual payment at the end of your novated lease depends on a few factors. The cost of the car and the length of your lease term will impact the residual value. The ATO has percentage thresholds on the residual value based onthe length of the loan.

• Do you own the car after a novated lease?

  You don't automatically own the car after a novated lease. If you choose to pay out the residual value left at the end of the novated lease, you will own the car. Otherwise you can choose to take out a new lease.

Written by

Elizabeth Barry

Lead Editor

Elizabeth Barry was the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review. See full bio

Elizabeth's expertise

Elizabeth has written 211 Finder guides across topics including:

• Banking
• Personal finance
• Investing