SEEMS CONFUSING
Deciding on a lease can be tiring and confusing. Sometimes dealers don’t explain it well or customers don’t understand. But one thing is clear: leasing a new car can be just as beneficial as buying with cash or financing.
Lets look at the basics of a lease starting with the residual value. Lease calculators are available online, but they could be useless unless you understand what they’re asking you.
SO WHAT DOES “RESIDUAL VALUE LEASE” MEAN?
What is residual value in a car lease? Residual value is the starting point for a lease, set by a company like ALG, owned by JD Power. You can see how many sources affected this predicted value, but one significant contributing factor was the pandemic. It caused a huge disruption to the economy, unlike anything we’ve seen before.
Supply and demand determine value. The pandemic and a fire at the Renesas plant caused supply chain issues and a microchip shortage. These factors greatly affected today’s market.
ALRIGHT, GREAT, SO SHOW ME ALREADY!
Calculate Base Residual Value as a percentage. Let’s try this out.
2024 Mazda CX-5 Carbon Edition
MSRP – $34,560
Base Residual – 63% at 33 months
- Standard lease mileage is typically 15,000 per year
- The estimated annual mileage adds 2% at 12,000 miles.
- The estimated mileage adds 3% at 10,000 miles per year.
Lets figure 10,000 miles per year
- 63% + 3% = 66% residual value
- $34,560 – 66% = $22,809.60 residual value
Now we have the remaining value of the Mazda CX-5. After 33 months, you will know how much you can pay for it. This is what residual value lease means in the car sales industry. Next we’ll look at depreciated value and what it is and how it relates.
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