Residual value is essential in determining the amount you pay at the end of your novated lease. It can also help you decide whether salary sacrifice is proper for you.
Residual values are usually defined at the beginning of a lease during the establishment of terms. Understanding them can save you time and money. For more information about the residual value novated lease buyout, click here.
The amount you pay at the end of your lease.
The residual value (or buyout) is predetermined in your lease agreement, reflecting the car’s estimated worth at the end of its term. It’s based on the vehicle’s expected depreciation, mileage, and how long it will be leased.
Independent leasing companies determine residual values to balance offering enticing low lease payments with making sure the vehicles they’re leasing are selling at or above their residual values when off-lease. You can find the residual values for most cars on their websites or ask your novated lease provider to provide details of any specific vehicle you’re interested in leasing.
It will help if you remember that the residual value can impact your monthly lease payments, as it is a factor in calculating the Money Factor. Understanding the residual value can save you thousands at the end of your novated lease. Considering it as you decide which vehicle to lease is a great idea.
What happens if the car is worth more than the residual value?
Residual value is a crucial factor to consider when considering leasing a car. It determines how much you will pay at the end of your lease and is a vital component of your monthly payment. Knowing this figure before signing on the dotted line is essential to budget accordingly. For more information about the residual value novated lease buyout, click here.
However, your vehicle may be worth more than the residual buyout value estimated by the lending institution. This could be due to low mileage, excellent condition, and high demand for your car model.
You have equity if your car is worth more than the residual amount in your lease contract. This can be good because you can make the residual payment and own the car, refinance the residual into a new lease term with the exact vehicle, or trade it in for something else.
How do I know if the car is worth more than the residual value?
Auto finance companies are pretty good at estimating the car’s worth at the end of your lease terms. However, the value of a vehicle can shift over time based on changes in the market and other factors.
Residual values are calculated based on the expected depreciation rate for your car’s model over the lease term. It’s also a function of the car’s original manufacturer’s suggested retail price (MSRP).
You can find a residual value chart in your lease agreement or a vehicle’s history report online. A higher residual value means the car is predicted to hold its value better, which reduces the risk for the leasing company and your lease payments over the lease term. That’s one reason manufacturers love high residuals: the lower the gap between MSRP and resale, the more profitable the car will be. The buyer also wins. Whether you want to buy out your current car lease or transfer your lease to another party, a vehicle history report is essential. For more information about the residual value novated lease buyout, click here.
What happens if the car is worth less than the residual value?
If you decide to buy a car with a high residual value, it may help you avoid higher monthly payments. But it would help if you also considered what happens when your lease ends and the vehicle is worth less than the residual value. Remember, it’s the finance institution that owns your leased vehicle that takes on the risk for the market value at the end of your lease.
That’s why a low residual value can be a great incentive to choose a car that is expected to hold its value well. And if the resale value is better than the residual, that’s even more reason to opt for an expensive car with good quality and features that will last. While residual value might sound intimidating, it’s quite a simple concept.