Residual value is what your lessor predicts the leased car will be worth at the end of lease term. Residuals are predicted by using actuary tables based on previous resale values of like vehicles. Some cars will maintain their value and others will not. The higher the cars residual value the lower the monthly lease payment. The higher the cars residual value the higher the end of the lease purchase option. Lessors will vary the residual value to compete for your lease business. This means that the car you want to lease may have different residual values established by each Lessor. The residual value directly affects your monthly lease payment and must be disclosed to you. In the majority of leases the residual value is also the end of lease purchase price. So, a high residual value will lower your monthly payment but it will cost you more to buy the car under the end of lease purchase option.
NOTE: Residual value will lower
your monthly payment by reducing the amount of the car's value you use. Example:
Cars value is $10,000.00 (-) residual value 4,000.00 $ 6,000.00* Residual values is one of the most abused parts of auto leasing. Companies would inflate the future value of a vehicle to lower payments and be competitive. Inflated Residual Value is one of the main reasons auto leasing almost died. |
