The residual value of the car is set by the bank and other third-party data information services. Generally, you can’t really negotiate the rates but you can always look for leasing companies that are offering slightly different residual value.
Your goal should be to find the highest residual value with the lowest money factor. When the residual value is high, it decreases the amount of money you are supposed to pay during the lease period and leave the vehicle’s liability on the leasing company instead. In short, the residual value is the amount for which you can buy the car at the end of the lease period.
Residual value is also known as lease-end value or the lease-end purchase price which is set by taking into account the depreciation of the car, the historical demand of the model and effects of expected mileage on the value of the car. Some experts also take into account the market conditions like the price of gas for determining the residual value.
Why is residual value important?
Residual value is important and these reasons explain it well:
- The depreciation between the current value of your car and residual value is used for calculating the portion of the car’s monthly payments.
- The residual value also determines how much you will be paying if you buy the car at the end of its lease.
In short, the residual value helps you understand what you will pay for the car now and what you will be paying for your new car.
How to calculate the residual value of the car?
The residual value is calculated by applying the car’s deprecation value as the percentage of the monthly payments. For instance, you have leased a car that is worth $20,000 and it is a 3-year lease contract period. Once the lease ends, the residual value was $10,000. That means the car will be losing 50 percent of its value. The remaining 50% will be spread out throughout the monthly payments.
How to find the best residual?
The residual value of your car will be an estimate so it is going to be a negotiable part of your lease. Here is how you can find the best residual:
Do your research
You must start by looking into the historical resale value of your car. It won’t be a bad idea to do your own calculations for figuring out how much you think the car is going to depreciate.
Compare the residual values
You must ask the residual value of the car from different lessors. Then, you can compare these values and negotiate the right deal with confidence.
Increase the down payment
If you choose to pay lower monthly payments, this will artificially increase the residual value of your time. When the lease period is over, you might be forced to buy your car above its market value. What you can do is offer a down payment instead of using the residual value as a leverage for lowering the down payment. A good thing is that this will keep but your residual value and monthly payment low. If negotiating the residual value of the car does not change anything, then you might want to go for lease assumption.
