Balloon (Or Residual) Payments with a RemServ Novated Lease
After balloons are blown up, they gradually lose their bulbous glory, becoming something less formidable. The residual payment on a novated lease works in much the same way.
The residual – or balloon – payment is an amount calculated by the ATO at the end of your novated lease and represents the outstanding amount of finance required to purchase the car.
In much the same way as a costlier, more durable balloon might be inflated to a greater size than a cheaper one, a more expensive car results in a larger residual payment – nevertheless, all balloons get smaller over time. And the longer you have the balloon, the more it will shrink.
Residual values
The ATO’s guidelines on residual values are based on a minimum percentage of the vehicle cost (for example, the amount you purchased the car for) over the lease term. The table below details the ATO’s minimum residual values.
- 12 Month Lease – 65.63%
- 24 Month Lease – 56.25%
- 36 Month Lease – 46.88%
- 48 Month Lease – 37.5%
- 60 Month Lease – 28.13%
No nasty surprises
At RemServ we’re all about helping you avoid nasty surprises through bundling your car’s running costs into your novated lease payments – and it’s the same story with your balloon payment. We let you know what your residual payment will be at the beginning of your lease, so you’ll have time to plan how best to deal with it.
Your end-of-lease options
There are a number of options for dealing with your balloon payment at the end of your lease:
- Trading in the existing vehicle and entering into a novated lease for a new car (you’ll need to pay the balloon off, and then you’ll get a new balloon for the new car lease).
- Keeping the same car through an extension of the existing lease – your balloon will continue to get smaller.
- Paying off the balloon and owning the car outright.
- Selling the car and using the proceeds to pay off the balloon. In the event that the sale price is greater than the balloon, you will receive the surplus funds. However, where the sale price is less than the balloon, you will have to pay the shortfall (or otherwise refinance under a new loan).
Not all balloons are full of hot air
It pays to know a bit about balloon, or residual, payments – it’s not as complicated as it sounds – but here are some tips.
Stay in the know – If you’re still not quite sure what we mean by ‘balloon’ or ‘residual’, give us a call for a chat, or get some independent financial and tax advice – it’s sometimes easier to have it explained to you by a real, live person.
Plan ahead – Consider which option suits you best for dealing with the balloon payment – for instance you might prefer to put away a bit of money each week so you’ll have enough to pay it off at the end of the lease. Or maybe you love your car so much you already know you’re going to re-lease it and watch that balloon deflate further. Either way, take some time to think about it and if you’re unsure, let your RemServ customer care consultant know.
Don’t box yourself in – We don’t all need a luxury car, although you can get one through a novated lease. It’s a good idea to look at a range of vehicles and consider the length of the lease – both these factors will affect the residual payment also.
To find out more about how you could be making your money work for you through a RemServ novated lease, get in touch today!
Disclaimer: This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.
