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Residual value lease7/30/2023 This is a point that is frequently misunderstood by leasing consumers. How are car lease residuals set?Īuto lease residuals are always - always - set as a percentage of MSRP - never on negotiated price. Manufacturers’ residual values are nearly always higher than industry-average values because they can afford to lose money on the back end of the lease to get the business on the front end. “Captive” finance companies owned by leading car manufacturers, such as Ford Credit and Honda Financial Services, are the most aggressive in setting residuals. Manufacturers usually set their own residuals and frequently promote limited-time lease deals that offer higher-than-normal residuals - and lower-than-normal monthly payments. A lease company may adjust those values up or down, depending on how competitive they want to be, and how much risk (of estimating too high) they want to take. There are industry sources ( ALG, Blackbook, and others) for automobile residual values that many lease finance companies use as a basis for setting their own values. It is often misunderstood by consumers that residuals are fixed for a particular vehicle make and model - that everyone has the same residual. One dealer who uses a particular lease company may offer a significantly different residual value than another dealer who uses a different company, for exactly the same vehicle and same lease. Residual value estimates can vary, depending on who is doing the estimating. In short, lease residuals amount to nothing more than an educated guess - by experienced “experts” in the business. The value can be affected by a number of factors, including assumed average annual mileage, number of months in the lease, make/model vehicle, resale history, predicted future supply and demand, rise/fall in gas prices, and anticipated future economic conditions. What are residuals?Ĭar lease residuals are a statement of the expected depreciation of a vehicle’s value over the life of a lease. The higher the residual, the smaller the difference, the lower the lease cost and payments for a given selling price. Residual values play a key part in the calculation of lease monthly payments since leases are based on the difference between residual value and negotiated selling price. The longer the lease, the lower the residual value, as compared to the original MSRP sticker price. Residual value (“residuals”), in car leasing, refers to the estimated - repeat, estimated - wholesale value of a leased vehicle at the end of the scheduled lease term. Understand Car Lease Residual Value What are lease residuals and how to find them?
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