Before you sign a lease agreement, check out the residual value of the car. The residual value is what the leasing company believes the car will be worth at the end of your lease. It has a huge impact on your monthly payments and could also be important if you decide to purchase the car at the end of the lease. The value is based on a percentage of the Manufacturer’s Suggested Retail Price (MSRP) and is set by the leasing company, not the dealer.
Find the MSRP for the car. Note that you calculate residual value using MSRP, even if you negotiated the price down below MSRP with the dealer. The dealer can tell you the MSRP or you can find the information online using Edmunds, Kelly Blue Book or the manufacturer’s website.
Request the residual value percentage rate the leasing company is using to determine the lease end value. Typically, this percentage will be between 50 and 58 percent but can go lower or higher. The lower the percentage, the lower your monthly lease payments will be and the higher the residual value will be at the end of the lease.
Multiply the MSRP by the residual value percentage rate. For instance, if the car’s MSRP is $22,000 and the residual value is 50 percent, then 22,000 x 0.5 = 11,000. At the end of the lease, the residual value in the car is $11,000. This means that if you decided to buy the car at the end of your lease, the price would be $11,000.
Tips & Warnings
- Leasing companies set their residual value calculations based on number of factors, including how much they think they will be able to sell your car for as a used car after your lease. Residuals are generally non-negotiable, and the dealer is not involved in setting them; however, different leasing companies may offer different residual rates. If you don’t like a residual, you can try another leasing company.
- Photo Credit yellow car, a Honda Japanese sport car model image by alma_sacra from Fotolia.com
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