Spelling: lease re·sid·u·al val·ue
What Is Lease Residual Value?
Lease residual value is the estimated future worth of a leased vehicle at the end of the lease term. This figure is set by the leasing company at the beginning of the lease and is used to calculate your monthly payments and potential lease buyout cost.
In simple terms, it’s what the car is expected to be worth when your lease ends.
Lease Residual Value Meaning in Car Leasing
In car leasing, the residual value represents the depreciated value of the vehicle at lease-end. It’s a crucial number because it:
- Helps determine your monthly lease payments
- Sets your purchase price if you decide to buy the car
- Affects how much equity, if any, you might gain from a buyout
The higher the residual value, the lower your monthly payments, because you’re only paying for the car’s depreciation during the lease, not its full price.
Residual values are typically expressed as a percentage of the car’s manufacturer’s suggested retail price.
For example:
- MSRP: $30,000
- Residual value: 55%
- Residual dollar amount: $16,500
That $16,500 becomes the car’s estimated value at lease-end and your buyout price if you choose to purchase the vehicle.
How Lease Residual Value Works
Here’s how residual value impacts a lease:
- Set at lease signing by the lessor, based on expected depreciation
- Used to calculate monthly payments by subtracting it from the capitalized cost
- Listed in your lease agreement as the buyout price at the end of the lease
- If you exceed mileage limits or return the car with damage, the vehicle may be worth less than its residual, triggering fees or negative equity
- If the car is worth more than the residual, you could buy it and sell it at a profit
Residual value is influenced by:
- Lease term length (shorter leases = higher residuals)
- Make/model and brand reputation
- Vehicle segment (SUVs and hybrids often retain value better)
- Market trends and economic factors
Lease Residual Value in Car Leasing Agreements
You’ll find the residual value clearly listed in your lease contract, often under a section titled “End-of-Term Purchase Option” or “Residual Value.” This number is locked in at signing and doesn’t change, even if the market shifts.
Why it matters:
- Buying the car: This is the price you’ll pay if you exercise your lease purchase option
- Calculating equity: Compare this figure to the car’s actual market value near lease-end
- Planning ahead: Knowing your residual helps you decide early whether buying or returning the car makes more financial sense
Example: If your residual value is $18,000 and the vehicle is worth $21,000, you may have $3,000 in equity by buying it and reselling or trading in.
Related Terms for Residual Value
- Prev Term: lease purchase option
- Next Term: lease term
- Related Terms: lease buyout, capitalized cost, depreciation, money factor