The Facts About The Residual Value Of Leasing

A leasing car contract can not be signed without it mentioning the Residual Value of a Loan.  This term refers to the amount of money that you will need to use at the end of the lease contract in order to buy the car.  It does not affect the monthly payments, but it can affect you if you decide to close the  Car Leasing contract before the due date, by high penalties.  

The Residual Value is added to the Total Value of the leasing interest rates  and it represents the value of the car at the end of the lease contract upon is based the transfer from the leasing company to the rightful owner.  It is mainly about the fact that the car is used during the lease contract and its value decreases.  This can affect your monthly rates , and it goes like this: if you decide to lease  a car, you will pay the value of the car that you use in the period of time the lease contract runs.  

I had a friend that leased  a 25,000 $ car for a period of 2 years and the leasing company estimated through the Residual Value how much the car would be used during these 2 years.  So they established a Residual Value of  20,000$ at the end of the contract.  My friends’ monthly payments were calculated on the difference between the Purchase Value of the car and the Residual Value divided for the 24 months lease contract: this meant an average monthly payment of 208.3 ( plus the interest, fees and taxes).  

If the car was supposed to lose half of her value, the same calculation will lead to a great difference regarding the monthly payment: 375$+fees+taxes+interest !   The most convenient aspect would be a high Residual Value for us to have lower monthly rates.  

The opposite thing occurs when you decide to buy the car at the end of the lease contract: low rates, huge final purchase cost.  The Residual Value can help you in deciding whether you will keep the car at low monthly payments and a moderate Residual Value or you deposit a large down payment, have low rates and a high Residual Value.