# Vehicle Residual Value

One important piece of information that applies to car leasing is the concept of a car's residual value. We'll help you wrap your mind around what it is and why it's important to ensure you enter into car lease negotiations armed with knowledge that could save you money.

## What Is a Car's Residual Value?

A car's residual value is an estimate of how much your car will be worth when your lease is up. This number is factored into your monthly car lease payments, so it's helpful to do some research on your own to understand what the estimated residual value of your vehicle may be.

A great place to start is by dong some online research on the resale value of your car. Choosing a car that holds its resale value over time will give you a higher residual value.

To calculate the residual value of your car, try an online tool like the one offered by Cars.com. You can choose the make and model of your vehicle and it will calculate both the MSRP and the estimated residual value, and apply those to several leasing options.

## Why Is Residual Value Important?

The residual value is important for two reasons:

• The depreciation amount between your car's current value and residual value is used to calculate a portion of your monthly payments.
• It also determines how much you will pay if you buy your car at the end of your lease.

Essentially, the residual value of a car helps you understand what you are paying now and what you'll be paying later for your new vehicle.

## Calculating Residual Value

A residual value calculation is done by applying the estimated depreciation value of your car as a percentage of your monthly payments.

Here's a hypothetical EXAMPLE of how a situation might work out:

• You sign a 3-year lease on a car worth \$20,000.
• At the end of your lease, the residual value is determined to be \$10,000.
• During your lease, the car will lose 50% of its value.
• That 50%—in this case, \$10,000—will be spread out through your monthly lease payments.

## Tips for Lease Negotiation

Since a car's residual value is an estimate, it is definitely a negotiable part of your lease.

As stated earlier, look into the historical resale value of your vehicle. Do your own calculations to figure out how much you think the car will depreciate over time. If the dealer's number is significantly higher than your estimate, ask them to go back to the drawing board.

### Compare Residual Values

The best way to find the right residual value for your car is to ask different lessors for the residual value on the car you are interested in. That way, you'll go into your lease negotiations armed with a number you feel confident with.