Novated lease residual value (balloon payment)

What is the novated lease residual value?

The novated lease residual value is the amount required as a lump sum payment at the end of the lease term for you to own the car. It’s also known as the novated lease balloon payment. The residual amount is a percentage of the purchase price of the vehicle, with the percentage depending on the length of your lease.

A shorter lease term will mean a higher residual amount, as the car will have retained a higher percentage of its value. A longer lease means a lower residual.

That’s because the residual payment on a novated lease is designed to reflect what the vehicle will be worth at the end of the lease term, “based on a reasonable valuation of estimated market value”, as the ATO puts it.

During the novated lease term, your payments cover leasing the vehicle plus your running costs. You’re not actually paying anything towards owning the car during the lease term – i.e. you’re just leasing the vehicle. The residual is what’s required for you to gain ownership of the car.

ATO novated lease residual value guidelines for 2026

Novated lease term	Minimum residual payment level
1 year	65.63%
2 years	56.25%
3 years	46.88%
4 years	37.50%
5 years	28.13%
Source: ATO

How the residual payment works on a novated lease

Here are the key points to understand about how the novated lease residual value works:

The residual value is set at the start of your novated lease agreement and is fixed at that point. If you request a quote from us, the residual amount will be clearly shown on your price and savings estimate.
Residual value percentages are generally the same for all vehicle types (i.e. on electric car novated leases and traditional ICE-engine cars)
The residual falls due at the end of your lease term. As the end of your lease approaches, we’ll be in touch to discuss your options.
You can’t salary sacrifice your car’s residual value – it must be covered with after-tax money.
The residual amount owed on the car is inclusive of GST.

What are my options for making the residual payment?

Here are the main options you’ll have when the residual payment on your novated lease is due.

1. Pay the residual amount using cash

If you want to own the car outright with no further payments owing on it, you can make the residual payment to the lease finance company using cash. The payment must be made with after-tax funds (e.g. your savings).

This brings your novated lease to an end, meaning you will no longer have salary sacrifice car payments deducted from your pay. You will also no longer enjoy a tax benefit on any of your car running costs, which will need to be covered separately once your lease ends.

2. Trade in your car and use the sale value to cover the residual

This is generally the more common approach and involves upgrading your vehicle when your novated lease ends. The residual value on the lease that is ending is cleared using the sale value of the old vehicle, and then you start a new novated lease with a new car.

If the sale value of the old car is higher than the residual on that novated lease, you get to keep the profit, tax-free. If the sale value is lower than the residual, you’ll need to cover the difference.

3. Refinance the residual into a new novated lease term

Refinancing your novated lease’s residual value simply means extending your existing lease for a new term. This new lease, in turn, will have a residual value which will be a percentage of the residual on the old lease. All other aspects of the new lease will be the same – essentially it becomes a used car novated lease.

But don't assume you're guaranteed to make a profit

There are a couple of very important caveats you should consider here. The resale value of your vehicle will depend on a number of factors, including but not limited to the make and model of the car, its condition and how many KMs it has on the clock.

Your ability to sell it for a profit could also be impacted by the overall market for used cars at that time and any government regulations that may have been introduced since you acquired it initially.

If for any reason your vehicle sells for less than the residual owing, you will need to pay the difference.

Vehicle choice is important

Choosing a vehicle that will retain its value well will help you make the most of your trade in when the residual on your novated lease is due.

Remember, the residual percentage is generally the same whether you pick a car that will hold its value well, or one that won’t.

Our novated lease consultants are experts on the car market in Australia and can help you when it comes to deciding which cars tend to hold their value best.

Get in touch

Advantages and disadvantages of novated lease residual

What are the advantages and disadvantages of having a novated lease residual?

Advantages

Your regular salary sacrificed car payments are considerably lower than other types of car finance (e.g. car loans without balloon payments).
Having lower repayments means it’s easier to manage day-to-day expenses, particularly as payments are automatically deducted from your pre-tax salary.
When the lease ends, you have three choices, which means paying it isn’t your only option (more on this below).

Disadvantages

There’s a big one-off cost to contend with at the end of the lease if you want to keep the car. This lump sum can be a shock if you don’t plan for it.
Unlike the regular lease payments and running costs, there is no GST saving on the residual payment.
There’s little wiggle room to negotiate the residual payment level as the standard percentages are set by the ATO.

Can I request a higher or lower residual value for my novated lease?

Because the ATO sets the minimum residual value levels on novated leases, it’s generally not possible to change your residual. However, there can be exceptions to this rule. For example, if you will accumulate a significantly higher-than-normal number of KMs using your car, it may be possible to request a lower residual to take account of your vehicle’s likely lower value at the end of your novated lease term.

You can discuss your residual options with your Novated Lease Australia expert consultant.

Residual value vs car loan balloon payment

The residual payment on a novated lease is similar to a car loan balloon payment in that both defer a portion of the vehicle’s cost until the end of the term.

The main difference is a novated lease residual is set in line with ATO guidelines and reflects the estimated value of the vehicle, while a car loan balloon payment is chosen by the borrower, may be larger, and is primarily used to reduce loan repayments rather than meet tax or leasing requirements.