The residual value of a car is its projected value at the end of a lease term. This value is generally set by the lessor or the finance company who holds the title to a lessor’s vehicle. The two main elements that determine a car’s residual value are its mileage and depreciation.
Most lessors place mileage limits on cars that they lease out to customers. These limits range from about 10-15,000 miles per year. A car with a 10,000 miles-per-year limit will have a noticeably higher residual value than a car with a 15,000 miles-per-year limit. Without a doubt, a car with a lower mileage at the end of a lease term will be worth more, hence the higher residual value.
Although mileage is somewhat important for determining a car’s residual value, the amount of depreciation expected in a car’s value is the main determinant of the residual value. Different cars depreciate at different rates, but cars with the lowest lease payments will have comparably high residual values.
If you plan on leasing a car in the near future, pay close attention to residual values. If you’re looking for relatively low lease payments, look for cars that have high residual values.