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When you lease a vehicle, one of the key terms you’ll encounter is residual value. Set by the leasing company at the beginning of your contract, this figure plays a key role in determining your monthly lease payment and buyout price. But what is it, exactly, and how does the calculation work?
In this guide, learn all you need to know about residual value, from the definition and impacts to whether it’s based on the MSRP or selling price of a vehicle. By the end, you’ll be better equipped to compare lease offers, find the best deal for your needs and plan for the end of your lease with confidence.
The residual value of a leased vehicle is the estimated worth of the car at the end of your lease, as determined by the leasing company. It’s decided at the start of your contract and used to determine your monthly payment amount and buyout price — the cost to purchase the vehicle when your lease is up.
For example, if you lease a car with an MSRP of $30,000 and the residual price is $15,000, you could buy it out at the end of your lease for $15,000 (additional fees may apply). That $15,000 residual value would also help determine the car’s depreciation and finance charges, both of which impact your monthly payment.
To get the residual value of a car, leasing companies typically multiply the Manufacturer’s Suggested Retail Price (MSRP) by the residual value percentage rate, which is often somewhere between 50% and 60%.
For example, if a vehicle’s MSRP is $40,000 and the residual value percentage rate is 50%, the residual value at the end of the lease would be $20,000. To find out the residual value percentage offered on a lease you’re considering, you can ask the lessor directly or review your proposed lease agreement.
Forecasted residual values are impacted by several factors, which can vary between leasing companies. However, some of the common factors include:
If you’re considering leasing a used car, the residual value will likely be less.
The residual value is calculated as a percentage of the MSRP, not the negotiated selling price. But what’s the difference?
The MSRP is the price the automaker recommends for the vehicle. However, dealers often acquire vehicles at wholesale prices, giving them room to discount the sale price below the MSRP and still make a profit. You can find the MSRP of a vehicle by checking the manufacturer’s website or its federally required Monroney window sticker.
The residual value of a vehicle plays a key part in any lease agreement, as it it helps to determine your monthly payments and lease buyout cost. Here’s a closer look at how it works.
Calculating monthly lease payments is a bit complicated, but it all starts with the residual value of a car (the MRSP multiplied by the residual percentage). From there, leasing companies generally follow these steps:
When it’s all said and done, the higher your residual value, the lower your monthly payments — and vice versa. However, a higher residual value also means a higher buyout cost at the end of your lease.
The residual value of a car is the amount you’re required to pay if you want to buy your leased vehicle at the end of your contract. In some cases, you can also opt to buy out a lease early — although it’ll usually involve paying the residual value plus your remaining payments and possibly an early termination fee.
A lease-end buyout can be beneficial in some situations, such as if you’re happy with the vehicle, it’s in good condition and the residual value is lower than the fair market value. However, if the residual value is more expensive than the fair market value or the vehicle needs expensive repairs soon, you can likely find a better deal by shopping around for another vehicle.
As the end of your lease approaches, you’ll need to think about your next steps. Do you want to trade in your leased vehicle for another one, buy your leased vehicle, or buy a different vehicle altogether? The best route will depend on your preferences, along with how the residual value fares in the market and if you owe any extra charges.
If you decide a lease buyout is the best choice, keep in mind — you don’t always have to cover the bill out of pocket. RefiJet offers lease buyout financing options through our network of lenders, allowing you to break the cost into manageable monthly payments over time. After just one application, we’ll shop your offer around to multiple lenders competing for your business.
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Learn more about residual value and how it impacts the vehicle leasing process.
The residual value is the estimated worth of a leased vehicle at the end of the lease term. It’s determined by the leasing company at the beginning of the contract and used to calculate your monthly payments and potential buyout price.
The residual value of a leased vehicle may be the buyout price but the two aren’t always the same. While the buyout price includes the residual value, it can also include other charges, such as an early termination fee and your remaining lease payments.
Yes, if you want to buy your leased car, the cost will be based on the residual value. However, extra costs could also apply, such as a purchase fee.
Understand whether a car lease residual is based on MSRP or sales price and how it affects your lease deal, monthly payments, and future buyout options.
