Balloon Payment Novated Lease
Know exactly what your balloon payment means and how you can minimise surprises at the end of your novated lease.
What Is a Balloon Payment on a Novated Lease?
A balloon payment on a novated lease is the final lump sum payment you need to make at the very end of your lease term. The ATO typically refers to this amount as the “set-residual value,” which represents the pre-agreed estimated value of the vehicle at the end of the lease.
The balloon is then calculated as a percentage of the original vehicle cost based on ATO guidelines. It is not set by your employer or lender.
Keep in mind that the balloon payment is not an extra fee. It simply reflects the portion of the car that hasn’t necessarily been covered by your salary deductions.
Essentially, a balloon payment helps ensure your novated lease is structured to match your vehicle’s expected depreciation.
For more information on the official ATO guidance on novated lease residual values, click here.
How Is the Balloon Payment Calculated?
The ATO residual value rules set the minimum balloon payment (residual value) based on your lease term. These percentages are determined by the ATO and applied to the original vehicle cost to ensure the lease reflects standard depreciation.
Understanding how the balloon payment novated lease is structured will help you estimate your end-of-lease obligation upfront.
For more information on the current ATO residual value percentages, read our guide. We break down the common questions we hear all the time and how our team can help.
What Are Your Options at the End of the Lease?
At the end of your novated lease, there are several options available to you, depending on your financial situation. Understanding your options helps you plan and avoid surprises.
Buy the car outright
You can pay the residual (balloon payment) and take full ownership of the vehicle. If the car’s market value is higher than the residual, often the case with well-chosen vehicles, you may be in a strong equity position.
Refinance the residual
Instead of paying the lump sum, you can refinance the residual value of the novated lease amount into a new finance arrangement or extend it through a new lease. This option helps you keep driving the same car without a large upfront payment.
Upgrade to a new lease
Trade in your current vehicle and start a fresh novated lease, pocketing any equity from your existing car. You can explore potential repayments using our novated lease calculator to compare options.
Need more help? Our team can walk you through which option makes the most financial sense before your lease ends.
Can You Negotiate the Residual Amount?
Yes, in some cases you can request a lower novated lease residual value, typically if you’re a high-kilometre driver who exceeds a certain number of kilometres per year. This adjustment (subject to approval) helps align the residual with the vehicle’s faster depreciation compared to standard usage.
However, keep in mind that residual values cannot be set below the ATO’s minimum thresholds.
Can You Avoid a Balloon Payment on a Novated Lease?
In most cases, no, you cannot avoid a balloon payment on a novated lease, as the ATO mandates a minimum residual value to be set at the end of the term. This is to ensure that the lease accurately reflects your vehicle’s depreciation value.
However, you can reduce the impact of the residual value. Your options may include:
- Setting aside your own savings
- Selecting a lower-cost vehicle
- Refinance the residual
- Trade in the car at the end of your lease term.
Keen to learn more about your options? Contact our team at 1800 990 700 or shoot us an email at info@novatedchoice.com.au.
Tips for Managing Your Balloon Payment
While balloon payments are considered useful, there are a few key tips you should be aware of:
- Choose a vehicle with a strong resale value. Popular models tend to depreciate slowly, improving the market value of your vehicle, sometimes even exceeding the residual value.
- Start saving early! Your balloon payment does not need to be a financial shock when your lease finishes.
- Consider your lease term carefully. Longer leases lower your regular payments but result in a smaller residual, while shorter terms mean higher repayments but a larger end value.
- Monitor your car’s market value. Keep an eye on resale trends to help you decide between selling and keeping your vehicle.
- Ask your novated lease provider to run end-of-lease numbers before committing to one.
- Opt for an EV! The FBT exemption associated with EVs can make novated leases even more cost-effective and the balloon payments easier to manage. Explore our EVs here.
Always review your options with an expert. They’ll help you decide whether a novated lease is well-suited to your current financial situation.
Talk to a Novated Lease Specialist Today
Not sure how the balloon payment affects your overall savings? Our team at Novated Choice will walk you through the numbers before you sign anything.
To get a quick estimate, try our novated lease calculator to compare options.
Frequently Asked Questions
Is the balloon payment the same as the residual value?
Yes, they mean the same thing. In novated leasing, they both refer to the final amount owed at the end of the lease term.
Do I have to pay the balloon payment at the end?
Not necessarily. You can choose to pay it outright, or you can refinance it. Alternatively, you can also choose to upgrade to a brand-new novated lease.
What happens if my car is worth more than the balloon payment?
Well, that’s good news then! You keep the equity if the car’s market value is above the residual, meaning you pocket 100% of the profit. Choosing a car with strong resale value increases the likelihood of this outcome, so choose wisely.
