refinance-balloon-payment

Should I refinance or pay my novated lease balloon payment?

Understanding what to do at the end of your novated lease.

Novated leases can be complicated products, but they offer a convenient way for you to finance a vehicle through your pre-tax salary. When it comes to the end of your novated lease term, you may find yourself with a balloon payment and the question of whether to refinance that payment or take out another lease. We show you how to work out the right option for you.

What happens at the end of a novated lease?

This depends on the type of novated lease you choose.

  • Novated operating lease. You return the vehicle for inspection at the end of the lease.
  • Novated finance lease. If the value of the vehicle is less than the residual value, you will be responsible for the shortfall. This results in a balloon payment.

What options do you have?

If you end your novated lease term and you’re left with a balloon payment due to the vehicle being valued at less than the residual value, you have a few avenues you can take. If you’ve saved over the course of your loan term, you can pay the balloon payment in full. If you haven’t saved, you can choose to take out a personal loan to cover the balloon payment, essentially “refinancing” your novated lease. You can also choose to take out another novated lease.

Should you refinance your balloon payment or take out another novated lease?

There is no one answer for this, as it depends on a multitude of factors. By taking these factors into consideration, you can work out which option will be better for your situation:

  • How much is your balloon payment? The amount you have to refinance will affect whether it’s worth refinancing or not.
  • How long are you planning to keep your vehicle for? The length of time you’re planning to keep your car also needs to be thought about. You should consider the age of the vehicle, the amount of the balloon payment and whether it can be repaid in that time.
  • Are you happy with your current vehicle? If you take out another lease, you will be able to get a new vehicle. However, you may want to keep your current vehicle. This is another factor to consider.

Make use of the tools available to you

When deciding whether or not to refinance, you can use finder.com.au’s tools to help make a better informed decision.

Deciding whether or not to refinance your novated lease balloon payment doesn’t have to be a complicated decision. With the right tools at your fingertips, you can make the right choice for your needs.

Picture: Shutterstock

Elizabeth Barry

Elizabeth is an editor for finder.com.au specialising in personal finance and fintech. She enjoys reading PDSs so you don’t have to.

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2 Responses

  1. Default Gravatar
    LoraineApril 28, 2018

    I had a novated lease over 5 years that has just finished. At the end of the lease I was reimbursed $12,000, which my pay office taxed. Is the reimbursed amount part of my taxable income for the Year?

    • finder Customer Care
      JeniApril 29, 2018Staff

      Hi Loraine,

      Thank you for getting in touch with finder.

      The reimbursed amount should not be part of your taxable income since you mentioned that your office has been taxed for the novated lease.

      You may want to review on types of income you need to declare by checking out this link.

      In addition, this page will help you know more about GST and vehicles purchased under novated leases.

      I hope this helps.

      Have a great day!

      Cheers,
      Jeni

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