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Home Car Leasing Debunking the Myths Surrounding Novated Lease Residual Value

Debunking the Myths Surrounding Novated Lease Residual Value

Some things about novated lease residual value are misconstrued.

Car leasing is a great option for people who want to drive their dream car without paying for it upfront. One of the most popular options is a novated lease. A novated lease is a three-way agreement between an employee, employer, and a finance provider. However, many are wary of signing up for a novated lease because they don’t understand how residual value novated lease works. So, to put your mind at ease, let’s discuss and debunk some of the most common myths about novated lease residual values:

Myth 1 – The Residual Value is Set in Stone

The most common myth about novated lease residual values is that the figure you agree on at the contract’s start is fixed and non-negotiable. However, this isn’t true. Although it can be difficult to negotiate a lower residual value after signing a contract, it’s not impossible. Sometimes, the finance provider may be willing to adjust the residual value if you make your case for it.

Myth 2 – You Have to Pay Off the Residual Value at the End of Your Contract

Contrary to a common myth, you don’t have to pay the entire residual value for your novated lease when the contract ends. Many contracts allow you to refinance the residual value to continue driving your car without paying a large lump sum upfront. Therefore, you don’t need to worry about paying off your novated lease in one go.

Myth 3 – The Residual Value Will Affect Your Taxable Income

Many worry their novated lease’s residual value will affect their taxable income. However, this isn’t true. The residual value doesn’t impact your taxes since it’s not part of your salary or wages package.

Myth 4 – Another common myth about residual value novated lease is that the finance provider sets the residual value. This isn’t true. Generally, the employee and employer negotiate and agree on a residual value before signing a contract. The finance provider may offer advice or guidance but has no say.

Myth 5 –   The Residual Value is Too High

The fifth and final myth about novated leases is that their residual values are too high. This isn’t always true. Novated lease residual values are usually based on market value, which ensures you don’t end up under or overpaying for your car. However, if you feel the residual value is too high, contact the finance provider and try renegotiating.

Myth 6 – The Residual Value is Always Less than the Car’s Actual Value

Some people fear they may pay more than their car is worth when it comes time to pay off the residual value. However, this isn’t necessarily true either. The residual value of a novated lease often considers depreciation and other factors that can affect the car’s market value, so you may end up paying less than what your car is worth at the end of your contract.

Myth 7 – You Don’t Have to Worry About the Residual Value

This myth is possibly the most dangerous. Many people mistakenly assume that because they are leasing a car, they don’t have to worry about the residual value. This isn’t true – you still need to consider the residual value when signing up for a novated lease, as it will impact your monthly payments and the amount you owe at the end of the contract.

Myth 8 – You Can’t Change the Residual Value Once the Contract is Signed

This isn’t true. While it can be difficult to renegotiate a novated lease residual value after signing a contract, it’s not impossible. If you make your case for the lower figure, the finance provider may agree to adjust it. 

Myth 9 – You Can’t Refinance the Residual Value

Finally, many people mistakenly believe they can’t refinance the residual value at the end of their novated lease contract. This isn’t true. In most cases, you can refinance the residual value so you don’t have to pay it all upfront. Therefore, with a novated lease, you don’t need to worry about having enough money saved up for the residual value when your contract ends. 

Understanding the realities versus the myths is key to deciding whether a novated lease is the right option for you. If you have any questions, seek guidance from a qualified finance professional.


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