Car Leasing: Residual Value Explained

Reader question:

Can you explain residual value when it comes to leasing a new car?

Antonio

No problem, Antonio.

I know the first time I read about residual value, I was like…what? It’s a simple concept, but at first presentation and it can be kind of difficult to understand. And, when going into leasing a new car, it’s one of the most important things that you have to know and think about. So, whatever you do, before you lease a new car you have to know about residual value, and you have to understand it if you want to get a good deal.

In a lease, you aren’t buying a car, so you aren’t going to continue paying the price of it as if it were new. What you’re actually going to do is pay the difference. What difference? Well, between the price of the car when it’s brand new and as yet untouched, and the price that it would depreciate to by the end of the term of your lease. That’s called the residual value.

For the majority of cars, the residual value is going to be about fifty percent of the original price of the car if you’re leasing it for thirty six months, so instead of paying for it as if it were new, you’ll only be paying half. For this reason, lots of people like to lease cars because, in one way of looking at it, it’s actually cheaper than getting a new car and the car is just as new. If you want to find out what the residual value for the car you’re leasing should be, call up the bank that’s financing you or the dealer.

Cheers,

Fashun Guadarrama.

About the Author:

Austin Davis, consumer car repair advocate. "Hi there! I love to help people solve their car repair problems and I hope my site was helpful to you today. Thank you for stopping by."