If you are in the market to lease a vehicle, you will hear the term residual value recur like a leitmotif. A residual value does not only affect your monthly payments, but is equally used by leasing companies to determine any penalties should you break your lease early and how much to pay if you decided to buy the vehicle at the end of your lease.
Let us first start by looking at the meaning of residual value. The term residual value, refers to the value of something after it has been used for some time. In leasing lingo, it refers to the depreciation of the vehicles value over the life of its lease. So how does it exactly affect your monthly payments? When you lease a car, you pay for the cars value that you use over the lease length. Suppose you leased an $18,000 car for 2 years: the leasing company needs to estimate the value of this car in two years time in order to know how much of the car you will be using during your lease term. Thats where the residual value comes into the equation. If the residual value is estimated to be $13,000 at the end of your lease, then your monthly payments will be calculated on the $5,000 you will use over 24 months, giving an average...
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