Is it Expensive to Break a Novated Lease?

11 Oct

Yes, breaking a novated lease can be quite costly, as it typically involves a range of fees and financial obligations. Let’s break down the expenses you might face when terminating your novated lease early.

1. Remaining Lease Payments

When you break a novated lease, you’ll usually be required to pay all remaining lease payments for the rest of the contract. For example, if you have 24 months left on a 60-month lease, you’ll be expected to pay those remaining 24 months. This can add up significantly, especially if you are still early in the lease period.

2. Early Termination Fees

Most novated lease agreements also include early termination fees. The amount of these fees varies depending on your leasing company and the terms of your contract. Some leases have a sliding scale, meaning the penalty decreases the longer you’ve been in the lease. Regardless, these fees can still be hefty.

3. Residual Value Payment

Another potential cost is the residual value of the vehicle. The residual value is the projected worth of the car at the end of the lease. If you choose to terminate early, you might be required to pay this amount, which is often factored into your total payout.

4. Additional Costs

Other potential fees you may encounter when breaking a novated lease include:

Administrative fees for processing the termination.
Costs to prepare the vehicle for resale.
Storage or transportation costs if applicable.
Any tax obligations related to the lease.

5. Impact on Credit Score

It’s also worth noting that failing to meet your financial obligations when breaking a lease can impact your credit score. This is why it’s important to understand the full scope of your responsibilities before deciding to terminate the lease.

Options to Minimise Costs

If you’re considering breaking your lease but want to minimise the financial impact, here are a couple of options:

Lease Transfer: Some companies allow you to transfer your lease to another person, which can reduce or eliminate the penalties.
Negotiation: In some cases, you might be able to negotiate more favourable terms with your leasing company.

Breaking a novated lease can be expensive, but exploring your options and understanding the full financial implications can help you make an informed decision.

Considering breaking your novated lease?

Mathew Lloyd