---
title: A Quick Guide to Residual Value in Leasing
url: https://www.leaseend.com/learn/a-quick-guide-to-residual-value-in-leasing
updated: 2024-06-03
---

## A Quick Guide to Residual Value in Leasing

So, you're at the end of your lease. Now what? 

You've likely heard terms like "residual value" and "buyout price" thrown around, but what do those terms actually mean? 

**Residual value** is the estimated value of your car at the end of your lease. Your **buyout price** is the amount it'll cost you to buy out your lease on your leased car. Residual value plays a big role in determining your buyout price, but there are a few other factors calculated into the price as well.

So, let's get into the details. How is your residual value determined? How is your buyout price calculated? And how do you know if a lease buyout is right for you?

https://www.youtube.com/watch?v=QRhWz811qhg

*(Psst. If you're ready to get going on your lease buyout, call **888-307-5197** for step-by-step help from a buyout advisor, or click the button below.) *

[Let's Go](https://my.leaseend.com/start)

## 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's [MSRP](https://leaseend.com/learn/msrp) (Manufacturer’s Suggested Retail Price) is $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 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 main factor in determining your **buyout cost**, and that number helps you decide whether it's a good deal to purchase the car.

For example:

If the residual value is **lower** than your car’s [current market value](https://www.kbb.com/), 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 are "underwater" on your lease and might want to pause and think about other options. (Note that there still may be other [factors](https://www.leaseend.com/learn/buying-out-a-leased-car) as to why you might want to buy out your lease, even if it isn't as financially advantageous from an equity perspective.)

## 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, simply enter your license plate number or VIN in the form below.