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The Residue Value Of Leasing
If you are in the market to lease a vehicle, you will hear the term 'residual value' recur like a leitmotif. A residuum value performs not only affect your monthly payments, but is equally used through letting companies to determine any penalties should you break your rent early and how much to pay if you decided to buy the vehicle at the end of your lease.
Let us first start by looking at the meaning of residuum value. The term 'residual value', refers to the value of something after it has been used for some time. In leasing lingo, it refers to the depreciation of the vehicle's value over the life of its lease.
So how does it exactly affect your monthly payments? When you lease a car, you pay for the car's value that you use over the lease length. Suppose you rented an $18,000 car for 2 years: the renting company needs to estimate the value of this car in two years time in order to know how much of the car you will be using during your lease term. That's where the 'residual value' comes into the equation. If the residue value is estimated to be $13,000 at the end of your lease, then your monthly payments will be calculated on the $5,000 you will use over 24 months, giving an average monthly defrayment of $208.3 (plus interest, tax and fees).
How about if the car is expected to lose half its value over the same period? In this scenario, you will be using $9,000 over the same period, leaving you with a higher monthly defrayment of $375 (plus interest, tax and fees).
As you can see, residue values are a key factor in determining how much money to pay on your let and the higher the residue value, the lower your monthly fees. This works in reverse if you build a bond with your car and decide to purchase it at the end of your rent. If we stick with the same example above, the lower monthly payments in the second scenario come at the toll of paying substantially more to buy your car at the end of the rent.
So, since the residue value is so important, how do I know which one is best for me? Well, it all depends whether you want to purchase the car at the end of your let. If you don't want to make a large down payment and you want low monthly payments, then a car that holds with a higher residual value is a good deal. If you are thinking of purchasing the car at lease-end, then you need to balance low-monthly payments with a moderate residue value.
About the Author Uchenna Ani-Okoye is an internet marketing advisor For further reading please check out: Bad Credit Small Loans
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