Car Lease Residuals
If you are looking to lease a car it is highly recommended that you know the meaning of all the financial terms that you will find in the contract. One of those is residual value, which refers to the estimated value of a leased car when the period of the agreement is over. The longer the period of the lease is, the lower the residual value of the car will be in comparison to the original MSRP price tag.
These residual values are very important during the calculations of the monthly payments due to the reason that leases are based upon the difference between the residual value and the negotiated selling price.
Car lease residuals are in fact a statement of the expected depreciation of the car’s value through the period of the lease. This value can be affected by various factors, like the number of months on the lease, expected average annual mileage, resale history, make & model, rise/fall in the prices of gas, along with predicted future supply/demand and the anticipated future financial conditions.
These estimates can be different, depending upon who is making them. Dealer X can offer a different residual value in comparison to dealer Y who is using a different lease company for the same type of lease and car.
These residuals are based upon a percentage of the MSRP and never on the negotiated price. To give you an example, a car that has a MSRP of $30,000 and a 50% residual value means that after the lease is over, the residual value will be $15,000.
There are many car lease consumers out there who are unhappy with the fact that in their pre-lease planning they cannot predict exactly the residual value they might be offered by a car dealer. For this reason, these lease residuals are quite similar with the interest rates on car loans. The only way in which we can find out for sure the residual value of a certain lease is by asking the dealer.
Most of us opt for car leasing because we don’t want to make a significant down payment and every month we want to have low payments. However, let’s imagine that over the period of the lease we got attached to the car and at the end we want to buy it. If that residual value has been inflated in an artificial way so that we can get lower monthly installments it means that we will have to pay more for the car in comparison to a used one that is identical.
What we’re trying to say is that you need to be very attentive at these residual values while you are looking for a car to buy and also have a sharp mind when doing the negotiations. Although in most of the situations you will not be able to negotiate the residual value, you can and you should shop for a car lease based on the residual value.
All things considered, the car lease residuals are a very significant part of the entire leasing equation and for this reason it is highly recommended that you choose the make and model based on the cars that hold their value over the years.
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