End of Novation Period - What Options? Part 4

Say you no longer want the car and simply want to hand it back. There is an option for you. Note: This option is very rarely used as it does not favour the driver in any way.

Option 4 - Hand the Vehicle Back

If the vehicle is handed back to the financier at the end of the Novated Lease period, the financier then auctions the vehicle for the best price offered (no reserve).

What Happens after the Auction?

The money raised from the sale (less costs) is used to pay out the residual amount plus GST of your Novated Lease. If there is a difference between the net funds (from the auction) and the residual amount plus GST, this amount is treated in either of the following ways:

a. Any shortfall between the net sale price and the residual amount plus GST is still the responsibility - and liability - of the driver. (you still owe them money!)

b. Any surplus between the net sale price and the residual amount plus GST is retained by the financier. (They keep it!!)

Summary
You do have a variety of options available to you at the end of a Novated Lease. You can keep the car or not. Whatever option you choose, remember that the residual value must be paid.

What Does the Word 'Novation' Mean?

Well I'm glad you asked... According to the Macquarie Dictionary, the word 'novation' is a law term and means:

...'the substitution of a new obligation for an old one, usually by the substitution of a new debtor or of a new creditor.'...

In terms of a novated lease this means that the employer - through the process of salary packaging - packages the employee's financial obligation to lease his car as part of his salary in pre tax dollars. Thus the original Financial Lease Agreement becomes a Novated Agreement.

What Types of Cars Can You Novate?

A broad range of cars can be novated.

You can novate a new car - either sourced by you or by the novation company.

You can novate a used car. The used car can be purchased:
- through a LMCT (Licenced Motor Car Trader) dealership;
- from a private seller; or
- from yourself! (your own car) *conditions apply

Yes, you can ask the novation company to organise the purchase of your own car by the financial institution, and then arrange to have the vehicle leased back to you through a novated lease. This was a particularly popular method of novation when interest rates went up and people wanted to move the lump sum they had invested in their car on to their home mortgage.

*The amount paid for your car will be determined by an evaluation obtained by the finance company and the novation company.