Residual value is the estimated worth of a leased vehicle at the end of the lease term, expressed as a percentage of the MSRP or a fixed dollar amount. It’s set at the beginning of the lease by the leasing company and determines how much depreciation you pay during the lease — higher residual values usually mean lower monthly payments.
Understanding residual value helps you compare lease deals and see which ones offer the best cost per month.
Why Residual Value Matters in Leasing
When you lease a car, your monthly payment is primarily based on:
Depreciation: The difference between the vehicle’s price (capitalized cost) and its residual value
Finance Charge: Based on the money factor
The higher the residual value, the less depreciation you pay, which usually lowers your monthly payment.
How Residual Value Is Expressed
Residual value is often shown in two ways:
Percentage (e.g., 55%, 60%, 65%) — Percentage of MSRP or negotiated price
Dollar amount — The future value in currency
Example:
MSRP: $40,000
Residual value: 60%
End-of-lease value: $24,000
You pay depreciation on the $16,000 difference over the lease term.
