Residual Value
Residual Value is the final lump-sum amount due at the end of a lease (such as a Finance Lease). It represents the estimated value of the asset at the end of the term, set according to ATO guidelines.
Residuals only apply to leases. For loans, the equivalent term is a Balloon Payment.
Why It Matters
Residual Values reduce monthly lease payments by deferring a portion of the cost to the end of the term. This helps businesses keep repayments low and preserve cashflow — especially when financing cars, utes, trucks, and equipment through Equipment Finance or Vehicle Finance.
The ATO sets strict minimum residual percentages to prevent leases from behaving like disguised loans.
How It Works
- The lender sets the Residual based on ATO guidelines (e.g., 28% for 5-year term).
- Your repayments are calculated excluding the Residual.
- At the end of the lease, you must pay or refinance the Residual.
- You may also upgrade the asset instead of paying it out.
Compare to: Finance Lease and Operating Lease.
Common Use Cases
- Businesses leasing vehicles with high turnover cycles
- Medical clinics leasing equipment with short tech lifespans
- Transport operators wanting predictable monthly lease costs
- Fleets using Finance Leases with planned upgrades
Related Switchboard Resources
ATO lease residual rules: ato.gov.au.
Is a Residual Value the same as a Balloon Payment?
No. Residuals apply to leases; Balloons apply to loans like Chattel Mortgage and Hire Purchase.
Can I refinance the Residual?
Yes — most businesses refinance the Residual into a new lease or loan to keep cashflow smooth.
Who owns the asset at the end?
Residuals only appear on leases, so ownership transfers only once the Residual is paid.