What “Residual value” means
Residual value is set by the leasing company, not the dealer, for each model, trim, term and mileage allowance. It’s expressed as a percentage of MSRP, for example 58% for 36 months at 12,000 miles a year. You can’t negotiate it, but you can choose cars and terms with strong residuals.
Your lease payment mostly pays for depreciation: the gap between the cap cost and the residual, spread over the term. That’s why two cars with the same price can have very different lease payments.
How it shows up at the dealership
Residuals sometimes get pumped up by the manufacturer to make a lease look cheap (“subvented”). That’s good for you. Separately, the residual on your contract is usually your buyout price at the end, plus a purchase option fee.
Worked example · illustrative numbers, not a quote
Same price, different residual, 36 months
| Cap cost on both cars | $38,500 |
| Car A: 60% residual on $40,000 MSRP | $24,000 · depreciation $403/mo |
| Car B: 50% residual on $40,000 MSRP | $20,000 · depreciation $514/mo |
| Car B costs more by | about $111/mo before rent charge |
Rent charge and tax come on top. Residuals change monthly; look them up for your region.
What to do
- Compare lease deals on cars with high residuals for your term and mileage.
- Make sure the mileage allowance on the contract matches the residual you were quoted.
- Negotiate the price; the residual stays fixed, so every dollar off the cap cost lowers the payment.
What to say
“What residual percentage and mileage is this based on? I want to confirm it matches what the leasing company is publishing this month.”
Also called: residual, lease-end value.