Can You Get Out Of A Novated Lease Early?

Yes, it is possible to exit a novated lease early, but it's important to understand the costs and procedures involved in doing so. Whether you’re facing job changes, unexpected financial difficulties, or lifestyle changes, there are several factors that will determine how feasible it is to break your novated lease contract early. Here's a closer look at what you need to consider when exiting a novated lease before its term expires.

Reasons for Early Termination

There are a few key scenarios where you might consider breaking your novated lease contract:

1. Employment Changes

If you leave your current job and your new employer doesn’t offer novated leasing, you may need to terminate your lease. Since a novated lease is tied to your employment, leaving your job could trigger the need to end the lease agreement early.

2. Financial Hardship

Unexpected financial difficulties can make it challenging to continue making your lease payments. If your financial situation changes, you may need to exit the lease early to ease your financial burden.

3. Lifestyle Changes

A change in personal circumstances, such as relocating or needing a different type of vehicle for family reasons, might make it necessary to end the lease. For example, if you’re moving to an area with better public transport options or need a more suitable vehicle, it may make sense to exit the novated lease early.

Costs of Early Termination

Exiting a novated lease early can come with significant financial implications. Here are some of the key costs and penalties you may face:

1. Payout Figure

To exit the lease, you usually need to cover the remaining lease payments, including the residual value of the vehicle. In some cases, the residual value may exceed the market value of the car, meaning you may end up paying more than the vehicle is worth. This is especially common if the car’s value depreciates faster than expected.

2. Early Termination Fees

Most lease agreements include early termination fees to cover administrative and logistical costs. These fees could include:

• Administrative fees for processing the early termination.

• Preparation fees for getting the vehicle ready for sale.

• Storage or transportation fees if the vehicle needs to be returned to the leasing company.

3. Negative Equity

If the vehicle’s market value is less than the payout figure, you may face negative equity. This means you owe more on the lease than the car is currently worth, leaving you with a financial gap to cover.

Steps to Take Before Exiting a Novated Lease Early

Exiting your lease early is possible, but there are a few steps you should take to understand the full financial impact and make the process smoother:

1. Review Your Lease Agreement

Go through your lease contract to understand the specific terms and penalties associated with early termination. The contract should outline the early termination clauses, including any fees and the process for ending the lease early. This will give you a clearer picture of the costs involved.

2. Consult Your Employer and Leasing Company

Since novated leases are tied to your employer, you’ll need to consult both your employer and the leasing company to discuss your options. They may offer solutions such as:

• Transferring the lease to another employee.

• Reducing the remaining costs through a different structure.

3. Seek Financial Advice

If you’re unsure about the financial implications of ending your novated lease early, it’s a good idea to consult a financial advisor. They can help you assess your options, provide advice on handling any negative equity, and suggest ways to manage the early termination costs.

Tips for a Smooth Transition

If you’re determined to exit your novated lease early, here are some tips to help make the process easier:

1. Plan Ahead

Ideally, time your exit to align with major financial events, such as receiving a bonus, tax refund, or other lump-sum income that can help cover the costs of early termination.

2. Maintain Open Communication

Keep communication lines open with both your employer and the leasing company. Clear and timely communication can help avoid misunderstandings and ensure that the process runs smoothly.

3. Keep Records

Ensure you document all communications, agreements, and paperwork related to the novated lease termination. This will protect you in case of any disputes or discrepancies.

Checklist for Ending Your Novated Lease Early

Here’s a simple checklist to guide you through the process of exiting your novated lease early:

• Review your lease agreement: Understand the terms and penalties for early termination.

• Consult your employer: Discuss if your new job offers novated leasing or if they can assist with the transition.

• Speak with your leasing company: Inquire about the payout figure, any termination fees, and buyout options.

• Seek financial advice: If necessary, speak with a financial advisor to ensure you understand the full financial implications.

• Document all agreements: Keep records of all communications, decisions, and paperwork.

Conclusion

Exiting a novated lease early is possible, but it’s important to be aware of the costs and penalties associated with breaking the contract. By carefully reviewing your lease agreement, consulting with your employer and leasing company, and seeking professional advice, you can decide whether early termination is the right option for you.

If you're considering novated lease buyout options or need help navigating the early termination process, contact us today to explore the best options and get expert advice on managing your lease.

FAQs

• Can I exit my novated lease early?

  Yes, it's possible to exit a novated lease early, but it typically involves paying the remaining lease payments, the residual value, and additional early termination fees.

• What are novated lease termination fees?

  Novated lease termination fees can include administrative charges, costs for preparing the vehicle for sale, and potential storage and transportation fees if the vehicle needs to be returned to the leasing company.

• What happens if my car’s value is less than the payout figure?

  If the car’s current value is lower than the payout figure, you may face negative equity, meaning you owe more on the lease than the vehicle is worth.

• Can I transfer my novated lease to someone else?

  In some cases, you may be able to transfer your novated lease to another employee if your employer allows it. It's worth discussing this option with your employer and leasing provider.

• How can I avoid financial difficulties when exiting a novated lease?

  Consulting a financial advisor can help you assess your options and minimise the impact of early termination costs. It’s also a good idea to time your exit with any financial events, such as a tax refund or bonus.