The day your car loan ends can feel like a mini milestone—you’ve finally finished paying off what’s likely been one of your bigger monthly expenses. But once you hit the end of your finance term, what happens next? Whether you’re driving a vehicle bought on a standard car loan, a novated lease, or a balloon payment arrangement, there are a few paths you can take. And each option has its pros and cons.
In this guide, we’ll explore what happens when your car finance term finishes, what options are available, and how to make a choice that suits your lifestyle, budget, and long-term goals.
What Happens at the End of a Car Loan?
When you take out a car loan, the agreement outlines how long you’ll be making repayments and what happens when the term ends. Most car loans in Australia run for around five years, and if you’ve kept up with your payments, you’ll reach the end of that term with either:
- Full ownership of the vehicle, if it was a standard car loan with no residual payment.
- A balloon payment due, if your loan was structured to include one.
- The option to return or buy the vehicle, common in novated lease or operating lease arrangements.
Understanding Your Loan Type
Standard Car Loan
If you’ve got a straightforward personal car loan, there are no surprises. Once the final payment is made, the car is yours outright. You’ll receive documentation confirming the car is now fully owned by you, and if the vehicle was used as security, that lien will be removed from the title.
Car Loan with a Balloon Payment
Some loans include a final lump sum known as a balloon payment. This reduces monthly repayments throughout the loan term but requires you to pay off the remaining amount at the end.
At this stage, you generally have three options:
- Pay the balloon in full and keep the car.
- Refinance the balloon payment with a new loan.
- Trade in the car and use its value towards a new vehicle purchase.
Novated Lease
If your vehicle was financed through a novated lease, your options at the end of the term usually include:
- Paying the residual (set by the ATO) and buying the car outright.
- Trading in or selling the vehicle and upgrading.
- Returning the car to the lease company, depending on the agreement.
Should You Keep, Sell or Trade?
When your car loan ends, your next move depends on your financial position and driving needs. Here are the typical options to consider:
Keep the Car
If it’s running well and suits your needs, keeping your fully paid-off car can be a wise financial decision. Without monthly payments, you free up room in your budget, and with regular maintenance, modern vehicles can easily last well beyond the finance term.
Sell the Car
You might consider selling if:
- The car no longer suits your lifestyle.
- It has high resale value.
- You want to avoid future maintenance costs as the car ages.
Selling privately usually gives you the best price, but it can take more time and effort compared to trading it in.
Trade In for a New Car
Trading in your vehicle is a convenient way to put its value towards your next car. If you’re entering a new finance agreement, the trade-in value can act as your deposit, potentially lowering your new repayments.
Just be mindful of the dealership’s valuation. It may be lower than what you’d get selling privately, so weigh the convenience against the financial trade-off.
Refinancing a Balloon Payment
If your loan ends with a balloon payment and you’re not ready to pay it in full, refinancing is an option. This involves taking out a new loan to cover the residual, spreading the payment over time.
Benefits include:
- Keeping your current car.
- More time to organise finances or sell privately.
However, keep in mind:
- You’ll continue paying interest.
- You may end up paying more overall.
Before refinancing, compare your car’s current value with the balloon amount. If the car’s value is lower, refinancing might not make financial sense.
Tips for Making the Right Choice
- Assess Your Car’s Condition: If your car is reliable and repair costs are low, keeping it might be your best bet.
- Check the Market: Is your car in high demand? That could make selling more attractive.
- Think Long Term: Are you planning any big life changes—a growing family or long commutes? Make sure your car fits your future plans.
- Review Insurance and Running Costs: Newer cars may cost more to insure, but older ones may cost more to maintain.
Wrapping Up: Your Loan’s Over, Now What?
Reaching the end of a car loan is a great financial milestone—but it also opens the door to new decisions. Whether you keep the car and enjoy debt-free driving, trade up to something new, or refinance a residual, understanding your options helps you make the smartest move.
Use this moment to reassess your vehicle needs and financial goals. It’s not just about owning a car—it’s about making sure your next steps align with your broader lifestyle.
FAQs
What happens when my car finance ends?
You either own the car outright, pay a balloon payment, or return the vehicle, depending on the type of finance you had.
Can I refinance a balloon payment?
Yes, you can take out a new loan to cover the balloon payment if you can’t pay it in full. Just be aware this adds more interest and extends your debt.
Is it better to sell or keep the car after the loan ends?
It depends on the car’s condition, its market value, and your current financial situation. Keeping it can save money, but selling might make sense if the vehicle no longer suits you.
What are my options at the end of a novated lease?
You can pay the residual to buy the car, trade it in, sell it privately, or return it, depending on the lease agreement.
How do I know if trading in is a good idea?
If you want to upgrade easily and quickly, trading in is convenient. But if maximising value is important, selling privately might give you a better return.
If you need expert advice, don’t hesitate to reach out to us. We’re here to guide you through every step. Contact Us and take charge of your financial future today!
✉️ info@wealthyyou.com.au
☎️ (02) 7900 3288
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