A guide to your end-of-lease options

Novated leasing allows employees to salary package their vehicle expenses, whilst also leveraging the benefits that come with full time or part time employment. We outline all you need to know about novated leases and your available options once your lease is up.

Understanding novated leases

What is a novated lease?

A novated lease is an ATO approved vehicle finance option with a major income tax saving benefit. Novated leasing categorises your vehicle as a work expense so you and your employer save on taxes. Employees choose the car they want and pay the lease out of their monthly salary. The process is prepaid and automated so you can enjoy the benefits of your own car without any of the background admin.

Your vehicle is essentially part of the equipment you need to do your job, and novated leasing allows you to finance this ‘equipment’ so you’re not out of pocket. Most of the time employers will have employee contracts that include a private vehicle, which is organised during employment. However if it’s not part of your package, it’s still likely beneficial for your employer to approve novated leasing if it’s required for your job.

Benefits of a novated lease

Both the employer and employee benefit from arranging a novated lease.

Benefits for an employee

  • Major tax breaks
  • Drive the latest models
  • Easy maintenance
  • Affordable payments

Benefits for an employer

  • GST breaks
  • Pay less tax
  • Better fringe benefits
  • Make your business more attractive to employees

Qualifying for a novated lease

Any professional earning an income and paying tax can qualify for a novated lease. Your employer determines whether a vehicle is an essential need for you to fulfil your job and works with you to arrange the lease. A few examples of professions requiring transport include:

  • Regional managers commuting between different locations
  • Sales consultants
  • Cleaners and delivery drivers
  • Vehicle operators for trades and customer-facing services

Inclusions in a novated lease

So what’s included in your novated lease? Short answer: all of it.

Your monthly payment includes all costs to run your vehicle, including:

  • Registration
  • Fuel
  • Insurance
  • Servicing and maintenance
  • Tyres and wheel alignment
  • Roadside assistance

The novated lease structure is designed to factor all operating costs for your vehicle, so you won’t need to pay out of pocket for any work-related travel.

Registration

Insurance

Service and maintenance

Tyres

Fuel

Roadside assistance

What's included in a novated lease? Financing your work vehicle

Getting Started – Applying for a Novated Lease

With the right financing support it’s fairly easy for you to apply for a novated lease. We’ve broken it down into 5 simple steps.

1. Talk to your employer

Discuss with your employer whether you are eligible and what options are available for your role.

2. Choose your car

Browse available cars for the perfect fit – Fingo’s in-house car broker can help with this.

3. Get a lease quote

Use our online calculator to estimate a quote, and then submit an enquiry to discuss and negotiate your options.

4. Start the application process

The application process requires a copy of your license, your payslip, as well as a few forms to fill out. We can handle all the admin and application tasks so you can rest easy.

5. Collect your vehicle

Once the application is approved, and your dealer has confirmed stock of your chosen vehicle you can organise a time to pick up your vehicle.

The Next Step: The End of Your Lease

When you first sign your lease contract you will commit to a contract duration and monthly payment. When this contract ends, you will need to determine a next step.

You (the employee) decide on the lease term, and the ATO has guidelines on the minimum and maximum residual percentage (balloon payment) for different terms. In most cases, the finance rate is set by the novated lease company and the lender will provide a minimum and maximum rate guideline. Once this ends, you have three main options when it comes to finishing your lease.

End of novated lease options

New car, new lease

Finish off your lease and trade it in for a new car

Extend your lease

Keep your car and continue your lease payments with adjustments

Buy outright

Pay off the residual amount and own your car outright

Upgrade to a new car

If you’re ready to bid farewell to your current car for something new you can swap it out for something new. If circumstances have changed this is a good option; you will turn in your current vehicle and start a lease with your new one.

Upgrades are suitable if:

  • Your travel or work needs have changed
  • Your commute is longer (or shorter)
  • You require fewer or more passenger seats
  • Newer vehicles mean fewer setbacks in performing work activities
  • Cash flow has improved and you’re able to splurge a little

Extend your lease

If you want to keep your current vehicle you can extend your lease with adjustments based on the determined value of the vehicle. This will usually mean the cost to continue leasing will be less than your previous lease considering its value will decline over tie.

Lease extensions are suitable if:

  • You are happy with your current vehicle
  • Travel or work needs haven’t changed
  • You would prefer to pay a lower lease cost
  • Residual at the end of the lease is lower (if you choose to eventually buy outright)

Pay off the residual and buy your car outright

In some instances you may want to keep your vehicle as your own. In this case, once the lease is finished you can buy the car outright. All novated leases require a residual amount to be paid after the lease ends. This is called a balloon payment, and is determined by the lease duration and value of the car.

If you can budget before the end of your lease, put aside a  so you can gain ownership ASAP.

Buying outright is suitable if:

  • You want complete ownership of the vehicle you love
  • You want more autonomy and freedom with how you use your vehicle
  • You’re looking to sell or upgrade your personal vehicle in the future

Ending your lease early

In some instances your circumstances may change and your lease is no longer convenient or possible.

How can I get out of a novated lease early?

If your job has been terminated or you are working for a different employer before the lease has ended, you will need to arrange to end your novated lease and start a new one. In this instance you have the same options – pay out the lease early (includes fees and chargers from the financer), novate the lease to another employer or continue to pay it off as an individual. If you choose the latter, as a private expense, it will not be tax deductable.

Residuals and surplus

The monthly payment over the course of your lease is budgeted to reflect operational costs, all inclusions and the value of the vehicle. When the lease ends the financer determines the amount paid and the amount budgeted.

Do you get payment back on a lease?

Instances like this occur when the operating costs of your vehicle were less than the leasing company’s budgeted cost. In these cases the leasing company will release the credit to the employer who will pay back the employee.

What happens if I have surplus funds in my account?

The residual cost, or balloon payment, is calculated by the ATO to reflect the vehicle’s value at the end of the lease. This can either be refinanced to continue leasing the vehicle, paid upfront to own the car outright, or used to trade-in or sell for a new vehicle. If the latter results in a surplus, where you sell the vehicle for more than the residual, these profits are yours to keep.

Preparing for the end of your lease

If you know your lease is ending it’s a good idea to know what option best suits you, and do the necessary research to either sell, purchase or lease a new car.

Steps to plan the end of your lease

  1. Decide on whether you will extend the lease, trade in for a new car, or buy outright
  2. Set aside any funds in case of residual payments
  3. Speak to your employer about your decision
  4. Speak to your financer to start the next step
  5. You’re all done!

Once you’ve made a decision for your lease you’re all set up to start driving the wheels you love again. Novated leasing makes it easier and more beneficial for businesses and employees to save on taxes and perform business activities without a worry.

Streamline the process with Fingo’s novated leases

Fingo Finance is a leading provider competitive vehicle financing solutions. We handle all the details of operational leasing, novated leases and fleet management,  so you can get your keys and get on the road quicker. Use our quote estimate calculator to determine your leasing expectations, then browse available cars using our partner company Carbroker.com.au.

All requests for a quote receive a copy of our Novated leasing guide, providing you with all the essential information to get the job done. We’re here to help, so get in touch and find out how much you can save on your taxes this year.

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