What is residual value in a car lease?
Residual value is what the leasing company predicts the car will be worth when the lease ends. You essentially pay for the difference between the price today and the residual, plus finance charges. A higher residual means lower monthly payments, and it also becomes your purchase price if you buy the car at the end.
Why it matters
Standard and set by the leasing company, not usually negotiable. But it's central to whether a lease is a good deal.
What dealers don't tell you
- An artificially low residual that inflates your monthly payment.
- A residual far below the car's likely resale value (bad for leasing, good for buying out).
How to negotiate it
- You generally can't change the residual, but you can compare cars with higher residuals for cheaper leases.
- If the residual is low, a lease-end buyout may be a bargain.
Worked example
"Residual value at end of term: $18,500 (58% of MSRP)." You can buy the car for $18,500 at lease end.
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Explain my car leaseFrequently asked questions
Can I negotiate the residual value?
Usually no. Residuals are set by the leasing bank. You can, however, shop for vehicles with higher residuals, which lease more cheaply.
Related terms
The lease's interest rate, written as a tiny decimal instead of a percentage.
Your option to buy the car at lease end (or sometimes earlier) for a set price.
Paying the entire lease up front in a single lump sum in exchange for a lower money factor.