• # Understanding Car Lease Residual Value

If you want to lease a car, you need to find out what car lease residual value is, and how it affects your monthly payment. This value is the amount you would pay to purchase the leased car, should you choose to do so, at the end of the lease period. The car’s value depreciates over time, and the residual value is based on the depreciation expected at the end of the lease term. The residual value of the car depends on the number of years you want to lease it. In general, the higher the residual value of the car, the lower the lease payments charged.

#### Residual Value

The residual value is one of most important factors used to calculate the lease payment, and it’s wise to shop around to compare the values offered by different financial institutions and car leasing companies before you finalize the lease. The residual value is non-negotiable and based on the model of the vehicle. A good quality car doesn’t depreciate fast, and thus has a better residual value. Due to this, the monthly payments for a luxury car are lower.

#### Calculating Residual Value

When you lease a car, you pay for that portion of the car’s value that you use. Thus, if the leased car’s market value is \$10,000 and it’s expected to be worth \$5,000 at the end of the lease period, the monthly payments are calculated on 50 percent of the original value. If the lease is for 3 years, then the monthly payments would be \$5,000 divided by 36 months. There would also be other factors such as interest, taxes and fees that would be payable. It would be advantageous to have a higher residual value if you wish to pay lower monthly payments, but if at the end of the lease period you decide to purchase the car, you should pay higher monthly payments so, the residual value is lower.

Remember to shop around for a lease based on residual value. This will help you lease an expensive car while still paying lower monthly payments.