The residual value of leasing

The residual value of leasing

If you are in the market to lease a vehicle, you will hear the term 

“residual value” recur like a leitmotif. A residual value does not only 

affect your monthly payments, but is equally used by leasing companies 

to determine any penalties should you break your lease early and how 

much to pay if you decided to buy the vehicle at the end of your lease.

Let us first start by looking at the meaning of residual value. The 

term “residual value”, refers to the value of something after it has 

been used for some time. In leasing lingo, it refers to the 

depreciation of the vehicle’s value over the life of its lease. 

So how does it exactly affect your monthly payments? When you lease a 

car, you pay for the car’s value that you use over the lease length. 

Suppose you leased an $18,000 car for 2 years: the leasing company 

needs to estimate the value of this car in two years time in order to know 

how much of the car you will be using during your lease term. That’s where 

the “residual value” comes into the equation. If the residual value is 

estimated to be $13,000 at the end of your lease, then your monthly 

payments will be calculated on the $5,000 you will use over 24 months, 

giving an average monthly payment of $208.3 (plus interest, tax and fees). 

How about if the car is expected to lose half its value over the same 

period? In this scenario, you will be using $9,000 over the same period, 

leaving you with a higher monthly payment of $375 (plus interest, tax and 

fees).

As you can see, residual values are a key factor in determining how much 

money to pay on your lease and the higher the residual value, the lower 

your monthly fees. This works in reverse if you build a bond with your car 

and decide to purchase it at the end of your lease. If we stick with the 

same example above, the lower monthly payments in the second scenario come

at the cost of paying substantially more to buy your car at the end of the 

lease. 

So, since the residual value is so important, how do I know which one is 

best for me? Well, it all depends whether you want to purchase the car at 

the end of your lease. If you don’t want to make a large down payment and 

you want low monthly payments, then a car that holds with a higher residual 

value is a good deal. If you are thinking of purchasing the car at 

lease-end, then you need to balance low-monthly payments with a moderate 

residual value.

The residual value of leasing

بقلم محمد عمايرة

محمد عمايرة 14 سنه ، مدون أردني مهووس بالتقنيه والتكنولوجيا الحديثه ويهتم بكل ما هو جديد في عالم التقنية والانترنت

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