For those who have already gone through car leasing procedure, the importance of car residual value is quite obvious. But for those who only plan to lease a car it’s important to discover the determinants of a good car leasing deal and how each of them affect your monthly car payments. These determinants are; car residual value; money factor; price; term. Today we are going to discuss what car residual value is and uncover several secrets of how it affects your car leasing deal.
What is a car residual value?
A car residual value is the estimated market value of a car at the end of a lease term. When you lease a car you pay for only a part of car’s market value, a part which you’ll actually be using over the lease period; the rest of the value may be considered the car residual value. It is always a percentage of MSRP and may be affected by the mileage of the car; length of the lease period; make and model of the car; resale history, etc.
How does a car residual value affect your leasing deal?
For those who are new in car leasing and have no experience I would advise to go through consumer guide to discover how monthly lease payments are calculated and thus have a base for understanding how car residual value affects your leasing deal. Basically the amount of car residual value has two kinds of effects.
1. Monthly payments
As long as your monthly payments are calculated using the difference between the car price (capital cost) and its residual value, obviously the higher car residual value the lower your monthly car payments. This means that the higher a car’s estimated market value is at the end of the lease term, the less you will have to pay for the car on monthly basis.
2. Purchasing the leased vehicle
On the other hand the higher car residual value the more you will have to pay for the car if you decide to buy it at the end of the lease term. Some people get too much used to their vehicles during the lease term or surpass the mileage limit and want to escape several penalties by purchasing the car.
So, to get the best possible car leasing deal, first of all you should decide whether or not you are likely to buy the car at the end of the lease period. If yes, you need to find a car with relevantly balanced residual value and monthly car lease payments in order not to overpay for the car.
In case you are sure you don’t intend to purchase the car, your task is simple; find a dealer who offers the highest car residual value and get a nice car leasing deal right away!