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A Quick Guide to Residual Value in Leasing
Published 6/2/25
Estimated Read Time: 5 minutes
TL;DR: Residual value is the estimated worth of your leased car at the end of your lease term. This value impacts your lease buyout decision—if the residual value is lower than your car’s market value, you could snag a great deal. If it’s higher, you might want to rethink your options.
When your lease contract was prepared, your lender made an educated guess for what your car would be worth at the end of your lease. You’ve heard the saying that a car loses value as soon as it’s driven off the lot? There’s truth to that statement. After you’ve been driving the car for the entirety of your lease term? The value of the car depreciates quite a bit.
So, based on historical data and a few in-house tricks, your lender makes an estimate as to just how much the car will depreciate (lose value) over your lease term. The estimated value of your leased car after your lease term is its residual value.
Although it’s an estimate, it’s a very educated guess, so lenders aren’t usually far off from the actual value of your car at lease-end. However, special circumstances can make the actual value of your car at lease-end way off from the estimated residual value – and this can be good or bad for you. We’ll talk about why, but first we need to quickly explain how residual value is calculated.
How is Residual Value Calculated?
Here’s where things get a bit technical (but we’ll make it easy). Lenders estimate how much your car will depreciate over the life of your lease, and that’s what makes up your residual value.
Let’s say your car had an MSRP (Manufacturer’s Suggested Retail Price) of $40,000, and your residual value is $24,000. In this case, the lender predicts your car will lose about 40% of its value over 3 years, which is $16,000.
How do they come up with this?
The calculation factors in things like:
The calculation factors in things like:
- The car’s make, model, and market trends
- How much the car is likely to depreciate over time
- The lender’s risk
If you're leasing a brand-new car, your monthly payments are covering the depreciation, plus interest, fees, and the lender’s cost of financing the lease.
Why Does Residual Value Matter?
If you're considering a lease buyout (i.e., buying your car at the end of the lease), the residual value is key. It's the buyout amount, and it helps you decide whether it's a good deal to purchase the car.
Here’s why it matters:
- If the residual value is lower than your car’s current market value, then buying out your lease could be a smart move. You get a car worth more than the buyout price!
- If the residual value is higher than your car’s current market value, you might want to pause and think about other options and factors as to why you might want to buy out your lease.
The Bottom Line
We know you’re busy, so we’ll keep it simple. You don’t need to calculate residual value yourself—just factor it in when you’re deciding whether to buy out your leased car.
If the residual value is lower than the car’s market value, that’s your cue to take advantage of a great deal on a car you already know and love. But if it’s higher than the market value, take a step back and weigh your options carefully.
At the end of the day, your next move should feel right for you—and if you need any help, we’ve got a team of lease experts ready to chat. Call us at 888-307-5197, or if you're ready to buy out your lease online, head over to leaseend.com to get started!
About the author
Sarah Williams
Sarah loves breaking down complex topics and making them accessible to everyday readers. With four years of experience writing in the fintech and auto industries, she’s helped shape Lease End’s voice and given consumers the confidence they need to tackle leasing topics.
Lease End's mission is to empower auto lease owners with the technology to easily exit their lease. If you'd like to learn more about the lease-end options available to you, please don't hesitate to contact us. Our expert advisors are always prepared to answer your questions and are committed to finding the right plan for your individual needs.
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©2025 Lease End
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