Residual value.
In plain English
Residual value is the dollar amount a lease company predicts a car will be worth when the lease ends, decided at signing and stated in the contract. It is usually shown as a percentage of the car's original price. Your lease payment is built mostly on the gap between the price you agree to and this residual, because that gap is the value the car loses while you drive it. A higher residual means a smaller gap to pay for, which lowers your monthly payment, and it also sets the price if you choose to buy the car at lease-end.
01Why it matters
A high residual value lowers your lease payment, and at turn-in it can mean the buyout price is more than the car is actually worth, which is worth checking before you decide to buy.
02The math, step by step
You lease a 30,000 dollar car with a residual value set at 60 percent, or 18,000 dollars. Your payments cover roughly the 12,000 dollar gap (plus finance charge and taxes) over the lease term. At the end, if the car is actually worth less than 18,000 dollars, you simply return it; if it is worth more, buying it out at 18,000 dollars could be a deal.
03What this is NOT
Residual value is a prediction set at signing, not the car's true worth at the end. The actual market value can come in higher or lower, which is exactly why a lease-end buyout sometimes makes sense and sometimes does not.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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