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.

Lots of people agree that car leasing is the more attractive option when you need to get a new car… but are they wrong?

There are certainly advantages to car leasing – but only if you don’t get sucked into a car dealer scam in the process… and the truth is: a lot of people get a crummy deal.

Leasing regulation does not require as much disclosure as buying a vehicle. This has opened the door for a lot of shady car dealers to work on your pocketbook and take you for all that you’ve got.

Take a good look at the common car leasing scams and make sure you protect yourself.

Ridiculously low interest rates:

Some dealers quote a lower interest rate than what you’ll actually be paying. They do this by either purposefully quoting the “money factor” as the interest rate or calculating the loan without amortizing some closing fees, like the security deposit, into the loan lease.

Take the money factor for example: this is typically expressed as a four decimal digit, something like 0.004. Some dealers quote this as a 4% interest rate when in fact you need to multiply it by 24 to get a rough idea of the interest rate on your loan.

In this example, the interest rate is a much higher at 9.6% than the “quoted” rate of 4%. Make sure you crunch the numbers and understand the formula they use to calculate their interest rate. Look out for any fees not factored into the calculation.

If you’re not satisfied, never enter into a lease agreement.

Terminate your lease early for a low penalty

This is a long standing car dealer scam when it comes to leasing. You ask your dealer how much you will pay if you want to terminate your lease and he tells you: “You can pay only a small early termination administrative fee of $250″…. he/she is misleading you.

What he is quoting is only the small administrative penalty of early termination. In fact, there is a much stiffer penalty called an early termination fee and this runs into thousands of dollars that comes on top of the other administrative early termination fee.

Do not confuse the early termination administrative penalty with the termination fee. Read the small print carefully and know just how much you will get charged should you terminate your lease before its scheduled end.

Pay for an extended warranty you don’t need

Here’s the scam: the dealer slips an extended-warranty into the deal, but it’s already part of your lease! So essentially you’re paying for two warranties, and I don’t have to tell you that that’s a rip off. Another angle is he might even try to sell you on a 36-month warranty when you’re only leasing the car for a 24-month term.

You warranty is already factored into the lease, so don’t get sold on extended warranties by a slick salesman.

This is one of the best car tips I can give you about car warranties: avoid extended warranties provided by the dealer… shop around and find the best price on your car warranty. You’d be surprised what you can find online.

“Zero dollar security deposit”

Any dealer who advertises a $0 security deposit is leaving out some of the details. A security deposit is always factored in the lease under the provision for disposition fees. I may sound like a broken record, but always ALWAYS read the fine print on any agreement that you sign.