Car Lease Residual Value Explained: What It Is & Why It Matters

Residual value is one of the most critical factors in determining a vehicle's lease payment. It represents the estimated worth of the car at the end of the lease term, usually expressed as a percentage of the manufacturer's suggested retail price (MSRP).

Because you are only paying for the vehicle's depreciation during the lease, a higher residual value means the car depreciates less, which results in a lower monthly payment. Conversely, a vehicle with a low residual value will lose more of its worth, leading to higher monthly costs.

For example, on a $40,000 car with a 3-year lease, a 60% residual value ($24,000) means you only pay for $16,000 of depreciation. If another car has a 50% residual value ($20,000), you must pay for $20,000 of depreciation over the same term, increasing your base payment by $111 per month.

When shopping for a lease, look for vehicles that hold their value exceptionally well, as they offer the most attractive lease rates. Our Car Lease Estimator lets you adjust the residual value slider to see exactly how it shapes your monthly payment.