What Happens at the End of My Novated Lease?
The fleet industry in Australia is a booming one.
Despite the future of car ownership changing with car/ride share popularity, private car-based mobility is still the preferred form of transport for most Australians. Today, small business owners and employees are just as reliant on cars, driven by a powerful sense of freedom and new technologies.
According to the ABS, over 90% of Australians live in a household with access to a car. New car sales are hitting record highs and business and rental fleets are on the rise.
But car running expenses aren’t decreasing. Aussies are spending an average of $71.50 a week on fuel alone, with household ownership costs adding up to $15,807 in 2017. However, novated leases are paving a better, more cost-effective way forward for drivers.
What Are Novated Leases?
These three-way agreements, also known as salary packaging arrangements, make purchasing a car affordable and easy. Typically, a novated lease will run between one and five years. All car running and maintenance expenses during this time are paid from your pre-tax income.
Whilst the tax incentives and cost savings are significant, drivers often question what will happen at the end of the novated lease. You still own the car, but some right and obligations are assigned to your employer.
At the end of your lease there are multiple options to consider. Here’s what to expect if your novated lease is coming to an end:
Should I Start a New Novated Lease?
If you have purchased a car under a novated lease, there are three options to consider:
- Start a new lease
- Extend lease (refinance the residual value and hang onto the same car longer)
- End novated lease (purchase the car outright and pay off the residual value)
New novated leases can be secured by trading in your car or selling privately. Once the car is sold, you pay the residual value and lease another. Make sure you know the end date of your agreement to help determine options, however. Novated leases that are broken early can expect to rack up financial penalties and additional costs.
If you lose your job or switch employers mid-lease, you won’t need to take out a new agreement. Instead, the lease is transferred to your new workplace. Alternatively, it may be set up as a finance loan.
Tip: Many fleet companies will offer lease protection insurance on salary packaging agreements. Check the terms and conditions as some finance expenses will be covered if you lose your job within a certain timeframe.
Can I Refinance My Current Car?
Extending your novated lease will give you access to a new vehicle or model. However, your current car can be refinanced if you’re happy to keep it.
If you choose to refinance your existing car, the residual value is re-leased at the end of the agreement. This benefits drivers by saving the hassle of selling or trading. However, it’s important to weigh up the reliability of your vehicle before deciding.
There’s a lot that goes wrong as cars age. In fact, even the most reliable vehicles crumble as time ticks on. Cars older than four years will usually experience costly or serious mechanical issues. To ensure you’re not re-leasing a money pit, don’t overlook your car’s reliability.
Am I Allowed to Buy the Vehicle Outright?
Drivers also have the opportunity to purchase the vehicle outright.
This is achieved by paying off the residual value, which is a more practical option for employees in a healthy financial position or about to retire.
Ending a novated lease by keeping the car is a recommended option for drivers not employed anymore. If you choose to buy yours outright, you will not be able to use your pre-tax funds to pay for it. Speak with your fleet company to determine your payout figure for this option.
Can I Return the Car to the Lease Company and Buy a New One?
If you decide you don’t need the car anymore, it may be returned to the lease company once your agreement ends.
Drivers find it common for vehicle requirements to change over time. Families grow and shrink, hobbies alternate and lifestyles demand different features. Thus, refinancing into a new vehicle at the end of a novated lease is an obvious and attractive choice for many.
Even if your needs don’t change, trying a more fuel-efficient brand or upgrading to the latest model can be a deciding factor.
Once you have made your decision, your local fleet company can guide you through the process. We will sell the vehicle on if you decide to upgrade.
Novated leases have become a smart way for Australians to save money and budget for running costs. For more information about which option is best for you post lease, speak with us today.