In terms of car leasing, a residual value is determined to express the resale value of your vehicle. After evaluating the cost of your monthly payments, the estimated residual amount is calculated by your leasing company before completing the agreement procedures.
Depending on the type of vehicle, the depreciated cost is summarised. In the case of Fleets, they have become more rigid over the years to avoid getting a toll on maximum loss.
In simple terms, the residual amount is figuring out your vehicle’s worth and not the actual selling price. Its a type of benchmark provided by leasing companies to remarket such fleet vehicles.
The factors include to calculate residual value are:
- Vehicle manufacturers
- Auction prices
- Residual data history
Everything ultimately comes down to how much a buyer is going to pay for the vehicle.
What determines the residual value of a leased vehicle?
A residual value of a car lease is the amount you get at the end of your lease term period. The amount is solely based upon your lease-end. You need to sign a car lease agreement to determine a percentage value to help calculate your vehicle amount.
Deflation is your lease payment divided over the lease term period, including the charge and interest rates.
How to calculate residual value?
To calculate the residual amount of your vehicle, the leasing company will use your vehicle’s annual mileage limit & the Length of the vehicle’s term papers to evaluate the deflated value upon your contract length. You can also use the residual amount calculator to check your predictions.
Always avoid exceeding the annual mileage limit of your vehicle and stick within the boundary of an agreement. Else, you might get an excess mileage charge.
Even though the miles-per-pence charge doesn’t sound much, it can quickly pile up.
Why calculate residual value?
First of all, when you lease your vehicle, your monthly income is calculated based on the difference between the vehicle’s current value plus the expected residual amount and added interest.
The purchase price & residual amount will be lower if you’ve chosen the vehicle to retain its value. Which indirectly results in lower monthly payments.
Example: A first-hand fleet loses its value above 50% over the time of three years. Therefore, its residual amount will get dramatically low compared to the vehicle’s cost in the agreement at first.
The difference in value is more negligible if it’s a used vehicle as the amount deflates at a slower pace than the brand-new vehicle.
Residual value facts
- The residual value will considerably affect your monthly income. (the higher the residual value, the higher the payments per month)
- The residual value is not a constant measure. (Every month and year, the residual value changes)
- All the lease vehicles lose their value over time.
- The residual amounts are also evaluated by lending institutions that offer and issue all lease contracts.
- Consumer trends & vehicle’s model history affect the overall residual value of your vehicle.