The residual value for a car lease is the value of the vehicle at the end of the lease term. This residual value is set by the leasing company and, by the way, it is not a value that you can negotiate with the dealer.
What is good residual value?
First, you should ask yourself this question: “Will I be buying the car at the end of the lease?” If the answer is no, then the residual value isn’t important and the monthly payment should be your primary concern.
Even though the residual is a major component of a car lease it is not the only component that effects your payment. If you are negotiating a lease you should focus on the parts of the lease that you can change to produce a low payment. The elements of a car lease that you can change are the price of the car and the money-factor. You can read about money-factors and residuals here.
But if you intend to purchase you car at the end of the lease, you should make sure the residual value is in-line with the value of the car. The good thing about a closed-end lease is that you can make that decision at the end of the term.
There are two kinds of consumer car leases. They are the closed-end lease and the open-end lease. The residual value will not change in a closed-end lease. In other words, the leasing company must buy the vehicle for residual amount regardless of the value of the car.
However, an open end-lease, if the residual value is too high then the customer must make up the difference. Ninety-nine percent of car leases are closed-ended. Never-the less, it is always a good question to ask if before you sign any documents.
Some cars will hold their value more than others but residuals will fall into these general amounts: 24 month lease 53% to 63% of MSRP, 36 month lease 44% to 55% of MSRP, 48 month lease 37% to 43% of MSRP.
Remember, if you are going to buy the car at the end of lease you should look for a low residual value. If a lease seems to have an artificially high residual, it is probably supported by a sub-vented lease program. A sub-vented lease program is a special offered by the manufacturer. the leasing company will increase the residual value to advertise a low monthly payment. In this situation it is almost never a good idea to buy the car at the end of the lease. The manufacturer will get the car back and take a loss when they resell it to their dealers at auction.
Keep in mind, negotiating the price and keeping an eye on the car dealer’s back-end profit is the best way to get a great lease.
You can read more about sub-vent leases and residuals in our lease tools section.