Residual Value

In car leasing, the term residual value refers to the value of a vehicle at the end of the leasing term. The residual value is included in the leasing contract and is an imputed value.

The future value of a car can only be estimated in advance. Normally the residual value is calculated based on the purchase price of the vehicle, the length of the lease term and the projected annual mileage. Other factors like the car’s brand and make also play a role in determining its residual value. The longer the lease term and the more mileage is added, the lower a car’s residual value will be.

The Swiss federal law governing consumer credit requires that the effective interest rate (leasing cost) be calculated based on the leased item’s cash price at the lease agreement’s beginning and at its end (the residual value), as well as the individual lease payments.

In other words: the higher the residual value used in a lease agreement, the lower the anticipated loss in the vehicle’s value and therefore, the lower the lease payments. So the imputed residual value directly affects the cost of your lease.

If you end up driving a lot less than you thought you would and because of this your car is worth more than the imputed residual value at the end of the lease term, you normally will still have to make your full lease payments as agreed. If, on the other hand, you use the car more than you expected, you will usually be charged extra for every additional kilometer.

Important: Unless your lease agreement specifically states otherwise, you as the lessee do not have the right to buy the vehicle at its residual value when the lease ends. Contrary to (seriously misled) popular opinion, the owner of the leased car is not the person who leases it, but the leasing company.

Tip: The car lease calculator on moneyland.ch lets you calculate leasing costs based on the quoted residual value. Alternatively, you can calculate costs based on the mileage you expect to put on it. If you use the second option, moneyland.ch calculates leasing costs based on typical residual values for the mileage you select.

More information:
Car leasing calculator
Car leasing tips
Swiss personal loan comparison
Personal loan calculator

About moneyland.ch

moneyland.ch is Switzerland’s independent online comparison service covering banking, insurance and telecom. More than 80 unbiased comparison tools and calculators are available on moneyland.ch, along with useful financial guides and timely news. The comprehensive comparison tools help you to find the right insurance policies, bank accounts, credit and prepaid cards, loans, mortgages, trading accounts and telecom products for your needs.