The popularity of vehicle leases has proven virtually uncontrollable. Many of today's most notable auto industry trends receive wide publicization-- but did you know that the number of vehicle leases is on the rise?
Most Americans grew to fear the concept of leasing during (and directly after) the Great Recession, but today's automobile leasing market proves that public outlook is changing.
One of the most important-- and confusing-- aspects of leasing a car lies in the vehicle's residual value. You likely heard the term several times while you moved through the process of signing your lease paperwork.
In fact, a leased vehicle's residual value directly impacts that car's price to lease.
What is Residual Value?
Before you determine your leased vehicle's residual value, you'll need to understand what the term means. Credit Karma summarizes residual value as "what the leasing company expects the car to be worth at the end of the lease."
The salesperson who helped you lease your car was mandated to discuss the vehicle's residual value while you assessed and signed the appropriate contracts. If you're ever in doubt when it comes to the residual value of your car, the easiest way to find it is to look over your lease paperwork for the details.
Residual value is shown as a dollar figure in order to make the concept easier for buyers to understand. However, the figure is calculated utilizing percentages.
A car's residual value is always equal to some percentage of the manufacturer's suggested retail price. Even if you negotiate and score a lower upfront price, the vehicle's residual value will still be calculated based on its MSRP.
Calculating the residual value of a leased vehicle is simple. All you need to do is multiply the car's MSRP by the leasing company's residual value percentage rate. These rates tend to hover between 50 and 60 percent.
Keep in mind that you won't be able to look up the residual value of a vehicle that has a make and model identical to yours. Residual values are not calculated by car companies or auto dealers. The leasing company itself carries the sole responsibility of determining an automobile's residual value.
Factors That Influence Residual Value
Your leased car's residual value is not predetermined. A number of key factors play into the residual value that your leasing company chooses to present you with.
Many people believe that residuals only hinge on a car's MSRP-- this is not the case.
Several different aspects of your vehicle, how it got to you, and how it's expected to hold up during the coming years play into its residual value. These include:
- The brand of the vehicle and the vehicle itself| Vehicle options, model release cycles, and brand credibility can all impact residual value. Retention values are directly influenced by a brand's credibility. Preceding models' values gradually decrease as new models are introduced
- Economics| Crucial economic measures like gas prices, the unemployment rate, and even the GDP influence residual value. Consumers and businesses may be impacted by decreased buying power as economic drivers shift. Gas prices can also lead to changes in residual value
- The market at large| Residual values are heavily based on the automotive market at large. As the market's supply fluctuates due to various factors, the value of used vehicles declines
Wilmar, Inc.: Your Partner in Fleet Management
At Wilmar, we're committed to moving our clients' fleets into the fast lane. We proudly serve as the Southeast's leading independent leasing and fleet management company.
Our approach to client partnerships hinges in flexible, customized solutions hand-created to solve customers' individual problems.
If you're interested in learning more about how leasing could change your fleet, get in touch with us today!
One of our industry experts will be glad to discuss the processes that contribute to an effective and beneficial fleet leasing agreement.
