Residual Value

Residual value is the leasing company’s estimate of what a car will be worth when the lease ends, expressed as a percentage of its original sticker price. A car with a 60 percent residual after three years is expected to retain more of its value than one with a 50 percent residual. You do not negotiate the residual; the lender sets it based on the model’s predicted depreciation.

Residual value drives your lease payment because a lease essentially charges you for the value the car loses while you drive it. The smaller the gap between the cap cost and the residual, the less depreciation you pay for, and the lower your monthly payment. A high residual also sets the buyout price if you choose to purchase the car at lease end, which can be a bargain when the car is worth more than its residual. Our buy versus lease playbook explains how residual value shapes the lease-versus-buy decision.