The end of a novated lease is the part people understand least when they sign, and it is where the residual (that lump sum you half-noticed on the quote) finally comes due. Here is exactly what happens and what your choices are.
First, the residual
The residual is a lump sum owing at the end of the lease, set by an ATO-mandated minimum percentage based on the term. For a 5-year lease it is 28.13% of the financed amount. It is not a surprise fee, it is the balloon that kept your repayments lower during the lease. It has to be dealt with when the term ends.
Your three options
When the lease ends you generally choose one of three paths:
- Pay out the residual and keep the car. You own it outright from then on, no more payments.
- Refinance the residual into a new lease or loan. This keeps the car but starts a new finance arrangement, so check the rate on that the same way you checked the first one.
- Sell the car and settle the residual. If the car is worth more than the residual, you pocket the difference. If it is worth less, you cover the shortfall.
Where people get caught
The residual is quoted inclusive or exclusive of GST depending on the provider, and mixing that up makes the end cost look wrong. Also, the car is often worth more than the residual at the end, especially if you drove less than budgeted, so selling can leave you in front. And any unused running-cost budget is usually reconciled and refunded, so check you are getting that back.
Plan for it before you sign
The smart move is to decide your end-of-lease plan at the start, because it changes whether the deal is good. If you intend to keep the car, the residual is just deferred cost and belongs in your total. Our lease vs buy comparison includes the residual so the number you see is the real cost of ending up owning the car.