It refers to the payment made, as per the contract agreed, between the lessor and lessee for granting the use of an asset. The term “Lease Payment” is analogous to the rental payment. Calculation of Lease Payment with Examples.We hope this gives you a good overview of how important the residual value is to getting the best lease for you. Just be aware of this when you see an unusually high residual value – it may be a good option for you, or it may not. That means the buy-out price will be higher than buying a different used car outright. Compared to other used cars out there, the residual value will be artificially high. While that is great news if you don't plan on buying out your lease – you'll have lower monthly payments since there's less calculated depreciation than normal – it's bad news if you want to buy out the lease. That's when a dealer offloads a really slow-selling car by pumping up its residual value artificially. Here's an important thing to watch out for: 'subvented' or 'subsidized' leases. If the car holds its value really well, there will be less depreciation – and that means lower payments, since you only pay for the value you 'use' over the course of the loan.

Ideally, you'd want a high residual value. But different lessors calculate the residual value differently, so you can definitely shop around to try to get a favorable residual. Now, in the real world, a lease is more expensive than that, considering you are paying fees, interest, and a bit of profit to all the people involved in getting you that lease. And at the end of the lease, you could buy the car for whatever value is left in it, or hand it off to the dealer. If you stop and think about it, that makes a lot of sense. What a lease is, essentially, is paying for how much value the car loses over the time you have it. Why does this matter to you? Your lease payment is basically the depreciation, split up over 36 months, with some fees and interest added in. It's also not negotiable, but the specific residual value can vary from lessor to lessor. They use a lot of data to calculate it, so it's not a wild guess. Instead, lessors use an artificial depreciation percentage, which is the residual value. So, your lessor won't use actual value to figure out how much your car depreciates and what it should be worth at the end of your lease. Maybe there are way too many cars like yours all coming off their leases at the same time, flooding the market. Now, every car is different, and the real value of a car in 36 months is hard to predict.

Over three years, the car has lost $8,130 in value. So, after three years, it's worth $21,870. It depreciates 10 percent each year in actual value. Let's say you lease a car that's worth $30,000. It's what the car is worth at the end of 36 months, when you factor in how much value it has lost being three years old ( depreciation is the technical term). The price you would pay for that car is called the residual value. Remember, at the end of a 36-month lease, you have two options: you can return the car to the dealer and walk away, or you can buy the car. They're easy to understand and affect you directly.īut how is the monthly payment calculated? This is where the residual value comes in. When you lease a new car, it's easy to focus on the two numbers that matter most to your bank account: the monthly payment, and the amount you have to put down. This is part of our Car Buyer's Glossary series breaking down all the terms you need to know if you're buying a new or used car from a dealership.

Lease residual value