what happens at the end of a novated lease

What Happens at the End of a Novated Lease? Your Options Explained

A novated lease can be a smart, tax-efficient way to finance a vehicle. But one of the most common questions employees have is: what happens when the lease ends?

Whether you’re new to novated leasing or coming to the end of your current agreement, understanding your options can help you make a confident and financially sound decision. In this article, we break down the three main end-of-lease choices, upgrading, buying, or returning the car, and what you need to consider with each.

1. What Happens When a Novated Lease Ends?

Most novated leases run for 2 to 5 years. When the term concludes, your salary packaging arrangement stops, and you’ll need to decide what to do with the vehicle.

At this point, the vehicle’s residual value, the estimated value of the car at lease end, comes into play. This amount is set at the beginning of the lease and must be paid if you want to keep the vehicle. However, you’re not obligated to buy it. You have three main options.

2. Option 1: Upgrade to a New Lease

This is the most common and convenient choice for many employees. You can return the current vehicle and start a new novated lease with a newer model.

Benefits include:

  • Continuation of salary packaging benefits
  • Access to newer, safer, and more fuel-efficient vehicles
  • No need to worry about selling or negotiating the trade-in value of your old car
  • Option to switch to an electric vehicle (EV), which may be FBT-exempt

This option suits those who like driving newer cars and want to avoid the responsibility of long-term car ownership.

3. Option 2: Buy the Vehicle

If you’ve grown attached to your car, you may choose to pay out the residual value and keep it. Once you do this, the car is fully yours.

Things to consider:

  • The residual value is agreed at the start of the lease and typically reflects fair market value.
  • You can pay it in cash or explore refinancing options if you prefer to spread the cost.
  • After purchase, running costs like servicing and insurance will no longer be salary packaged.
  • You assume full ownership and responsibility for the vehicle.

This option is ideal if the car is in good condition and meets your ongoing needs.

4. Option 3: Return the Vehicle

You can simply return the car to the lease provider with no further payments, provided the vehicle meets agreed return conditions.

Key points:

  • The car must be in acceptable condition with reasonable wear and tear.
  • Excessive damage or exceeding kilometre limits may incur charges.
  • No residual payment is required.
  • You’re free to walk away or reassess your transport needs.

This is a good option if you no longer need a car or want a break before starting a new lease.

5. Understanding Residual Value

The residual value is an important part of every novated lease. It’s the amount you would need to pay if you decide to purchase the car at the end of the lease.

  • Set based on ATO guidelines and standard depreciation assumptions.
  • Helps calculate your monthly lease payments.
  • In many cases, the residual is lower than the vehicle’s market value—offering a good buyout opportunity.
  • There’s no requirement to pay this unless you choose to keep the vehicle.

Knowing this figure in advance gives you time to plan and budget if buying the vehicle is something you’re considering.

6. Transitioning to a New Lease or Refinancing

If you choose not to return the car, you’ll need to decide how to manage the residual value.

Your options include:

  • Paying the residual value outright with cash
  • Refinancing the residual with a personal loan
  • Arranging a new novated lease and trading in your current vehicle

If you want to continue salary packaging but want a different car, you can easily start a new lease, often with minimal downtime between vehicles.

Learn More: Know about Operating Lease Options at One Car Group

7. Conclusion

The end of a novated lease is not the end of the road—it’s the start of your next vehicle decision. Whether you choose to upgrade, buy, or return, each option gives you flexibility and control.

By understanding your end-of-lease options early, you can plan ahead and avoid unnecessary costs or surprises. For personalised advice or to explore your next novated lease, reach out to a trusted provider like One Car Group and take the next step with confidence.