How To Work Out Residual Value
Every dealership calculates residual value differently. Go through various retail value guides to help you get through the situation. Lease the ones with high residual values so that your monthly payment is less. Ultimately, it’s the lender that gets to finalize the amount and not you. It’s good to have a proper idea of the lowest and highest residual values so that you can make an informed decision.
The difference between the selling price and the residual value is what makes up the bigger part of your lease amount. Based on the above example, your estimated lease payment will be the difference between the selling price ($30,000) and residual value ($18,000), i.e. $12,000. This $12,000 will be divided by the term (36 months), which means you’ll pay around $333 per month. Taxes, fees, and interest will also be added to this monthly amount.
Low vs High Residual Value
The residual value affects the monthly payments of the lease. A higher residual value means a higher monthly payment. Similarly, if you choose to lease a car with a low residual value, the monthly payments will be low. Popular labels and models with traditionally high resale prices typically have higher residual values.
- Look for a car with high residual value if you plan to lease for a certain amount of time and move on. On the other hand, if you have an idea to purchase another car by the end of the lease term, go for a lower residual value car even though your monthly payments will be slightly higher. It would be a smart idea because, at the end of the lease, the purchase cost will probably be your residual value and the purchase fees. This helps you stabilize your financial needs when you have to shell out money for a new vehicle
- A car with a high resale price keeps the used car market in profit. One reason car manufacturers encourage you to lease a car with high residual value is because of the resale price. When it comes to individual sellers, they tend to sell low residual value cars more. This is so that they can have a large monthly inflow of money and don’t have to worry about the amount they paid for the investment
What Should You Take Into Account
There are multiple factors that you must consider before choosing to lease a car.
- The most significant aspect to consider in leasing a car is the down payment and the depreciation of it over time. The depreciation will have an impact on your monthly payments. It can be high or low, depending on the residual value
- You should also consider the down payment, interest, taxes, fees, and other charges that will be part of the lease
- Take into account the lease type, for example open-ended and closed-end leases. Be clear about the lease terms of each before accepting to the terms
Bottom Line
As mentioned, the residual value of the car is the driving factor behind the lease’s monthly payments. Try looking for cars that have a higher residual value as it’ll help lower monthly payments. Compare quotes from various lenders, review your credit score and other eligibility criteria, and get a clear estimate. Finally, take into account the additional charges, taxes, and fees before you sign the deal.