How the residual value of a car effects your lease is dependent on many different factors. Car leasing is a booming industry that affects many Americans nowadays due to the hard economy. Being aware of residual lease values among other things relating to your car lease is important in getting you the best deal you can possibly get!
Unfortunately, not many people are prudent enough to research on these kinds of things and end up with less than good car lease deals.
If you already have or are planning on getting a car lease, then it is important to know how the residual value of a car affects your lease.
A car lease residual value is one of the most important, if not the most important factor in leasing a car.
But what are residual values?
In simple terms, it is the estimated value of your leased car vehicle at the end of the lease period.
Some of the factors that affect residuals are the annual mileage of a car, length of lease, model of the vehicle, its resale history, future supply and demand variables, gas prices, and even expected future economic conditions.
Lease residuals can be set by several different people. The dealer, the bank, the manufacturer, etc. are all able to effect the expected residual value of your car. It is important to note that auto lease residuals are always a set percentage of the MSRP or the Manufacturer’s Suggested Retail Price.
Avoid bank leases with over inflated rates to keep your payments low. If you want to know exactly how much the residual is on your car, you can grab a lease kit which contains a residual value calculator available online.
So how do residual values effect your lease?
The higher the expected residual value of the car, the lower your payments will be on your lease.
Look at it this way, if you’re leasing a car for $30,000 for two years, and it’s expected that the car will be worth $20,000 after two years then during your lease term you will need to pay $10,000 plus taxes and fees.
However if that same car is expected to be worth only $10,000 after your lease term then you’re actually paying $20,000 plus taxes and fees, and your payments will have more than doubled.
Trying to find a vehicle with a high residual value is great if you want low lease payments, but it’s also has a flip side. If you get really attached to your car and you want to keep it after your 2 year lease term, then a high residual value will leave you with a lot more to pay when it comes time to buy the car.
How the heck can I find a vehicle with a high residual value?
There are a number of ways of finding a car with a higher residual value.
Residual Value of the brand.
This is really important and can effect your lease payments quite a bit. Some brands hold their value better than others. In this case, you can do a lot of research online at sites like Edmonds.com to find used car prices and compare them to new car prices. This should give you a good indicator of how much your car will be worth after your lease.
Terms of the lease.
Lease terms will effect the residual value of your car by quite a bit. If you have a low mileage lease, the residual value of your car will stay higher than if you had a standard mileage lease. You should always shop around to find various lease terms as they will effect your payments.
Who is assigning the residual value.
The party that assigns the residual value to the vehicle will effect the residual value as well. A manufacturer’s residual value is almost always higher because they can generally afford to lose a bit of money on the back end of the deal just to get the business.
The most important part
Finding a good car lease takes research and education. You can often find that two different dealers will offer different residual values on the same car.
Which one do you choose?
If you’re looking to buy the car after your lease then you want the lowest residual value. But if you’re not intending on purchasing the car after your lease, then you want the highest residual value because it will end up saving you on monthly payments.
Have an experience with a car lease? Let us know in the comments below.