What Is Residual Value On A Car Lease?

For the most part the residual value of your leased car will slowly decrease over time, but that's not always the case. There are a variety of factors that can impact your car's residual value, including:

• Year the Car Was Manufactured: Vehicles that were manufactured more recently tend to carry a higher residual value than older cars, with the exception of those deemed classic or antique. The reason an older car has less residual value is usually due to the cost of repairs; as the model ages, the available parts become more difficult to get, and therefore more expensive.
• Current Condition of the Vehicle: One of the most influential factors in defining a car's residual value is what category of condition it falls within. Vehicles usually fall within one of four condition categories:
  • Excellent: A car in excellent condition will lack any appearance of scratching or rust on the exterior, have perfect mechanical function, and require zero repairs upon purchase. The internal components should be clean and contain no fluid leaks or flaws. The interior should be clean as well, with no damage to the car's upholstery or inlay. The car should also have a clean title history and clear record of service.
  • Good: A vehicle that falls into the "good" category will have no significant issues with its internal mechanics; any issues that do exist should not be costly to repair. There should be no major body damage, few issues with the interior, and little to no rust. Like an "excellent" car, a "good" car should have a clean title.
  • Fair: A car in fair condition likely has some issues with its internal mechanics, possibly with major components like the engine. It will also have visual flaws, including chipped paint, small tears in the interior, and some evidence of rust. For a car to stay out of the "poor" category, any issues with the car must be possible to repair, and the vehicle needs to be operational.
  • Poor: A far wider category, cars in poor condition vary wildly in value. These vehicles usually need to be appraised by an automotive professional, and tend to have a series of issues. Cars in the "poor" category may have a salvage or flood title, severe mechanical issues, or unknown mileage. Poor cars can also have significant rusting and issues with operation.
• Color of the Car's Paint: Certain body paint colors can increase or decrease a car's residual value due to popularity and perceived resale ability. More valuable colors include silver, white, and black, while less valuable colors tend to be anything gaudy or unusual.
• The Vehicle's Brand: Cars from more reputable manufacturing brands tend to hold their value longer; if your vehicle is made by a well-known company with a good reputation, the higher the likelihood you can easily find a buyer.
• Current Mileage of the Car: Much like a car's age, the mileage of a vehicle is a good indicator of how much wear-and-tear it has experienced over its lifetime. Mileage is often even more important than a car's manufacturing year; older vehicles that haven't been driven extensively tend to be in better condition, and therefore have a higher residual value.
• How Well the Vehicle Has Been Maintained: For a car to hold the maximum amount of value, it needs to be serviced on a regular basis. If routine maintenance is not kept up, issues within the vehicle can degrade its ability to operate. If a car isn't fully operational, it isn't likely to get into the "good" or "excellent" categories necessary to attain the highest value.

If you want to determine the residual value of your leased vehicle, you'll want to find the original value and subtract it from the depreciated value. The way to do this is to either check your lease paperwork for the initial value or find it using GoodCar VIN Decoder, then check the current value of the car. You can also hop over to GoodCar and use the Residual Value Calculator to find out the current value of your vehicle.

You may also have to take the manufacturer suggested retail price, or MSRP, and apply the residual value percentage rate set by your leasing company. Most of the time the dealership or finance company you have the lease with will calculate this number for you.

Dealerships set residual values and unlike lease terms, aren't up for negotiation. Once the residual value is calculated many dealerships will offer you the opportunity to buy the car for that amount; if not, you can return the car and start a new lease for a different vehicle. Most dealerships use the same data that GoodCar has access to, therefore you can get an insider's view of the details before working with the dealership.