Are you wondering what happens to your novated lease residual value at the end of the term? Or maybe you don’t understand what a residual is and want to know more about it.
Residual values are an essential factor in a lease deal. But they’re not the only factor; you should always compare them to other factors such as price and money.
What is Residual Value?
When you lease a car, the leasing company- whether an auto dealership or an independent financer- determines its residual value at the start of your contract. This estimate of how much your leased vehicle will be worth at the end of your lease term is used to calculate your monthly lease payments and the price you’ll pay if you decide to buy it at the end.
Lenders also prefer to see high residual values since they reduce their exposure to market fluctuations that could affect their lease revenues. However, they don’t like it when their resale value falls below the residual value of the leased car, increasing their risk.
Residual values are set by the car’s lender, who can reference industry sources such as the Automotive Lease Guide (ALG), Blackbook, or other resources. The lender then uses the residual value to calculate your regular lease payment, a percentage of the MSRP and the vehicle’s depreciation.
There’s no way to predict how the value of your leased car will decline in the future, and you’re likely to have to pay more than you would have if your vehicle had held its value better. That’s why choosing a car with a residual that fits your budget and your plans for the future is essential.
Residual Value Calculator
Sometimes, your residual lease value may be set to reflect market prices for vehicles at the end of the term. Therefore, it’s essential to understand the importance of your residual value to make smart leasing decisions.
Using a Residual Value Calculator
You can use the Vehicle Solutions Residual Value calculator to estimate the residual value of your leased asset. This tool is easy to use and allows you to calculate your leased asset’s residual value without technical knowledge.
This tool can be used for many assets, including property, equipment and raw materials. It can also be used to assess the profitability of a particular investment.
As a business owner, you should know the value of your assets at any given time. It can help you manage your business better and ensure that your company maximises its ROI.
There are two approaches to calculating the residual value of an asset: first, by using the salvage value and the cost of disposing of the purchase. The other approach is by using the residual value of comparable assets. It can be used to determine the residual value of an asset by comparing it with the value of similar assets traded in well-organised markets.
What happens at the end of your lease?
The end of a lease is a time of great uncertainty, as drivers often find their car requirements change. Families grow and shrink, hobbies change, and lifestyles demand new cars with different features. Fortunately, there are many options when the lease ends.
You may have noticed your lease contract includes a residual value, a predetermined amount for which you can buy the car at the end of your lease. Therefore, consider this crucial number when deciding on your lease contract.
Novated leases are a common way to finance which new vehicle, allowing you to borrow money from your pre-tax salary. It means you can take advantage of tax and GST benefits while saving on monthly payments and running costs.
At the end of your Vehicle Solutions novated lease, you’ll have to pay the termination fee, residual value and remaining loan balance. Once these are paid in full, your novated lease is considered an ownership transfer, and you can either purchase the car or continue to lease it.
A novated lease can be ideal for drivers who want to drive a new car but cannot afford the monthly payments. It can also be an intelligent move for drivers who are changing jobs, as it’s an excellent way to transfer the car without paying an extra termination fee.
Residual Options
A novated lease residual value is a tax-effective financing of a new or second-hand car. The employer pays the monthly lease repayments to the leasing company before the employee’s salary is paid – this allows employees to save on their income tax and Fringe Benefits Tax (FBT) obligations.
The Vehicle Solutions residual value in your novated lease contract is calculated on the expected value of the vehicle at the end of the lease term. This value is often around 50 to 60 per cent of the MSRP. Therefore, the higher the residual value, the lower your monthly payments.
Automakers love high residual values as they can boost sales and make more of their cars available to consumers. Lenders also want a high residual to help reduce their risk of defaulting on their loans.
Residuals vary depending on the vehicle and the equipment or options included in the sale price. Unfortunately, it’s not always possible to know the residual percentage of a lease, even on an advertised deal from a manufacturer or dealership.
Some models have a “purchase option” where you can purchase the vehicle at the end of the lease for the residual value plus any applicable sales tax or dealer fees. These “purchase options” can be a good deal for some buyers because they are usually much less than market prices.