what is residual value on a lease

Residual value is the estimated value of a leased vehicle at the end of the leasing term. It is the total value of the car at the end of the lease or the amount youll pay to purchase it at the conclusion of its lease term. The residual value is set at the start of your lease by the leasing company, which may be the car dealership or another financer, and it is a predetermined figure. A higher residual value means the company expects the car to hold its value well and undergo less depreciation over the lease term, which can result in lower monthly lease payments. The residual value is calculated based on several factors, including reliability, past vehicle models, and consumer trends. The residual value percentage rate represents the amount the lessor expects the vehicle to be worth at the end of the lease, and most vehicles are about 50 to 60 percent of their original MSRPs at the end of the lease term. The amortization of a leased car refers to the total amount you pay to finance it, minus its residual value.