- The residual is the agreed amount left owing at the scheduled end of the lease.
- Common minimum percentages reduce as the lease term becomes longer.
- A higher residual lowers regular finance repayments but leaves more to deal with later.
- The car's market value is not guaranteed to equal the residual.
What is a residual value?
The residual value is the amount deliberately left unpaid through the regular lease repayments. It is set when the lease begins and becomes due at the scheduled end of the term. It is sometimes called a balloon, but it should not be treated as an optional final payment.
The repayment is calculated using the financed amount, interest rate, lease term and residual. Because part of the vehicle value remains at the end, a lease repayment can look lower than a loan designed to reduce the balance to zero over the same period.
Common minimum residual percentages
| Lease term | Common minimum residual | Example on a $50,000 vehicle |
|---|---|---|
| 1 year | 65.63% | $32,815 |
| 2 years | 56.25% | $28,125 |
| 3 years | 46.88% | $23,440 |
| 4 years | 37.50% | $18,750 |
| 5 years | 28.13% | $14,065 |
These percentages are commonly used as minimum residual guidance for a car with an eight-year effective life. Actual documentation and tax treatment should be confirmed for the particular arrangement. Figures may be expressed with GST treatment that changes the displayed dollar amount.
A $50,000 vehicle on a five-year lease using 28.13% leaves an indicative residual of $14,065 before considering how the quote presents GST and other contract details. The vehicle may be worth more or less than that amount after five years.
What can you do at the end of the lease?
Pay the residual and keep the car
You can generally pay the amount using your own funds and obtain clear title once the financier completes its process.
Refinance the residual
A new finance arrangement may spread the amount over another term. This requires a new application and adds further interest and fees.
Sell or trade the vehicle
Sale or trade proceeds can be used toward the payout. If the car is worth more than the payout, the difference may be available to you after costs. If it is worth less, you fund the shortfall.
Start another novated lease
You may trade the current vehicle and enter a new arrangement, subject to finance approval and employer rules. Rolling a shortfall into another transaction can increase future debt and should be considered carefully.
Can you choose a higher residual?
Some financiers may allow a residual above the common minimum, subject to policy and the vehicle. That lowers the regular repayment but increases the end amount and the risk that the car is worth less than the payout. The lowest fortnightly quote is not automatically the safest structure.
What affects the car's value at lease end?
- Total kilometres and service history
- Vehicle condition, accident history and tyre condition
- Brand reputation, warranty and supply of used vehicles
- Technology changes, particularly for EV batteries and charging
- New-car discounts and model replacements
- Market demand for the body style and powertrain
General information: Contract terms and financier policies vary. Request a written payout and review your lease documents before making an end-of-lease or early-termination decision.