When shopping for a new vehicle, you may choose to lease instead of buy so that you don't need to make a long-term commitment and can enjoy the latest automotive features and tech more often. Because you are not paying into principal (think renting instead of buying), much of your lease payments cover the vehicle's depreciation (value loss). The residual value is the car's remaining value at the end of the lease term.

How is residual value calculated?

The leasing company determines residual value by accounting for a variety of factors, including perceived reliability, safety, resale value, and projected market conditions. Other aspects like new technologies, gas prices, and economic conditions can also have an effect on residual value.

If a vehicle has an MSRP of $40,000 and the projected residual value after a three-year lease is 60%, then the car is expected to be worth $24,000 when it's returned to the dealer.

Is residual value different from resale value?

While resale value indicates the vehicle's worth after depreciation, mileage, and "wear and tear," residual value is determined in advance and based on the MSRP.

Why is residual value important?

The higher a vehicle's residual value, the more the dealer can resell it for at the end of your lease, and the lower you will owe on said lease. Additionally, if your lease contract has a buyout option and the vehicle's residual value is $24,000, but the resale value ends up being $26,000 at the end of the lease, you could exercise the option to buy the vehicle for what is essentially a $2,000 discount. If the resale value is less than the residual value, lease contract terms protect the lessee from having to pay the difference.

If you have any questions about financing a new Audi, please don't hesitate to contact Audi Westwood. Our friendly and experienced finance specialists will be happy to assist you.

Categories: Finance