What is a residual value?
The residual is a pre-agreed lump sum representing the car's value at the end of the lease. The Australian Taxation Office sets minimum residuals based on the lease term, ranging from roughly 65.63% for a one-year lease down to 28.13% for a five-year lease.
Your monthly repayments are calculated so that, after paying interest and principal, the remaining loan balance equals the residual at lease end.
Your three options at lease end
First, you can pay the residual and own the car outright. Second, you can refinance the residual into a new lease, often with lower payments because the car is older. Third, you can trade the vehicle in: if its market value is higher than the residual, you keep the difference.
Most Australians choose option two or three, which means the balloon is rarely a true out-of-pocket expense.
Run the numbers for your situation
Use our free Australian novated lease calculator to see exactly how much you could save.
Open the calculator