Residual Value

The residual value is the value that the lease company estimates that a vehicle will be worth at the end of the lease, given the total number of miles written into the lease as well as the normal wear and tear the vehicle will be subject to during the lease period. It helps determine the monthly payment and the price to purchase the vehicle at lease end.

The residual value is normally computed as a percentage of the vehicle’s MSRP, not the selling price. Depending upon the leasing company, there are a number of options that can raise the MSRP and i residual value These are options that can be “residualized”.

Not all options can be residualized, even though they usually increase the selling price of the car. An aftermarket sunroof (manual or electric), aftermarket leather seats as well as special wheels (in some cases) will increase the selling price of a car, but also can raise the residual value, resulting in less of an increase to the monthly payment. Other options, such as an alarm system or rust proofing, will raise the price of the car, but cannot be residualized, making the monthly payment higher.