A novated lease can be a great way to finance a vehicle, offering tax-effective benefits and simplified budgeting for eligible employees. But what actually happens when your lease term ends?
At Fingo, we often hear this question from clients nearing the final months of their agreement. Whether you’re approaching the end of your lease or just exploring novated finance options, it’s important to understand the choices available to you and how they align with your personal or professional goals.
Understanding Novated Finance
A novated lease is a three-way agreement between you, your employer, and the finance company. Your employer makes regular payments to the financier using a portion of your pre-tax salary, allowing you to access potential tax advantages and consolidate vehicle-related costs into one regular deduction.
When the lease term ends—typically after two to five years—you’re presented with a few options.
Your End-of-Lease Options
Here are the most common pathways available once your novated lease reaches its conclusion:
1. Refinance the Residual Value
At the end of your lease, a residual value—also known as a balloon payment—is due. This is the pre-agreed value of the vehicle at the end of the finance term. If you’re not ready to pay this amount outright, you may choose to refinance it over a new term.
Pros:
- Retain the vehicle you’re comfortable with
- Spread the payment over time
- Avoid upfront lump sums
Cons:
- Extends your finance commitment
- May result in paying more interest over time
2. Upgrade to a New Vehicle
Many drivers take the opportunity to upgrade to a newer vehicle through a new novated finance agreement. This allows you to refresh your car every few years while continuing to enjoy the same bundled and simplified repayment structure.
Pros:
- Access newer technology and better fuel efficiency
- Maintain warranty coverage and reduced servicing needs
- Continue enjoying the benefits of novated finance
Cons:
- May involve a new residual value and commitment period
- Possible changes in monthly repayment amounts
3. Purchase the Vehicle Outright
You can choose to pay the residual value in full and take ownership of the car. From this point on, the vehicle is yours—with no further obligations to your employer or the finance company.
Pros:
- Full ownership of the vehicle
- No more salary deductions or finance obligations
Cons:
- Upfront cost may be significant
- You now manage ongoing expenses like servicing independently
4. Return the Vehicle
Some finance arrangements include the option to return the car at the end of the lease term. This typically applies if you don’t want to refinance, upgrade, or buy the vehicle.
Pros:
- No residual payment required
- A clean break without further commitments
Cons:
- You may need to cover excess wear or kilometre charges, depending on your agreement
- You’ll need to arrange new transport if you’re not upgrading
How to Prepare Before Your Lease Ends
To avoid surprises, it’s a good idea to:
- Check your lease agreement for the residual value and your available options
- Speak with your employer or finance provider about your intentions well before the end date
- Consider your current and future vehicle needs, especially if your work or lifestyle has changed
Understanding your end-of-lease options ensures you’re in control of your vehicle journey, whether you decide to keep your car, switch to a new one, or move on entirely.
If you’re unsure which path is right for you, Fingo’s team is here to help guide you through the decision-making process and ensure your next steps align with your financial goals. As a licensed motor car trader (LMCT), Fingo also offers obligation-free trade-in appraisals—providing you with valuable insights to help you make a well-informed decision.
Note: Fingo is not a credit provider. We partner with trusted finance companies to facilitate novated lease arrangements on your behalf.