Residual Value
Also known as: Residual, Lease-End Value, Guaranteed Future Value
Residual value is the projected worth of a leased vehicle at the end of the lease term, expressed as a percentage of MSRP. Higher residual values result in lower monthly lease payments.
How Residual Value Works
When you lease a car, you pay for the depreciation during the lease term — the difference between the capitalized cost and the residual value. A higher residual means less depreciation to pay for, which lowers your monthly payment. Residual values are set by the manufacturer's finance company and are NOT negotiable. They vary by make, model, trim, term length, and annual mileage allowance. Vehicles that hold their value well (Toyota, Lexus, Porsche) tend to have higher residuals and lower lease payments relative to their price.
Example
A $50,000 vehicle with 58% residual at 36 months: Residual value = $50,000 x 0.58 = $29,000. You're financing $21,000 in depreciation over 36 months (plus interest).
Frequently Asked Questions
What is a good residual value for a car lease?
A residual value above 55% at 36 months is considered good. Above 60% is excellent. Vehicles with high residuals (like Toyota, Lexus, and Porsche) typically offer the best lease values because you pay less in depreciation.
Can you negotiate residual value?
No. Residual values are set by the manufacturer's finance company and are non-negotiable. They are based on projected depreciation data. However, you can negotiate the selling price (cap cost) and potentially the money factor.
Does higher residual mean a better lease?
Generally yes. A higher residual value means less depreciation to finance, which lowers your monthly payment. However, the money factor and any lease cash incentives also significantly affect the total lease cost.
Related Lease Terms
A money factor is the interest rate on a car lease expressed as a small decimal.
Capitalized CostThe capitalized cost is the total amount being financed in a lease — the lease equivalent of a purchase price.
Disposition FeeA disposition fee is a charge (typically $300-$500) assessed by the leasing company when you return a leased vehicle at the end of the lease term.
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