Car leasing and residual value are closely linked. The higher it is, the lower your monthly payment, but is it still advantageous? Find out how it works and the best strategies for choosing the right financing method.
Buying a vehicle represents a significant investment, and many financing solutions exist, including leasing and car credit. One of the fundamental elements of a leasing contract is the residual value.
Little known to the general public, it nevertheless has a direct impact on the amount of your monthly payments and on your ability to buy the car back at the end of the contract.
But what exactly is residual value? How is it calculated and what are its effects on your financing? Leasing or car loan : which is the best option for you? Decryption.
What is residual value and how is it calculated?
The residual value represents the estimated value of a vehicle at the end of a leasing contract. In other words, it is the price at which the property could be resold once the rental period is over.
It is determined as soon as the contract is signed and can be negotiated with the concessionaire or the leasing company.
Its calculation is based on several criteria:
- The initial purchase price of the vehicle.
- The duration of the leasing contract.
- The expected mileage over the rental period.
- Wear and tear of the vehicle depending on the model and the market.
The residual value can never be negative. It is either positive, meaning that the vehicle still has a resale value, or zero if the asset is considered to be fully depreciated.
The impact of residual value on your monthly payments
The residual value plays a key role in calculating the monthly payments of your lease.
The higher it is, the lower your monthly payments will be, because the lessor anticipates an advantageous resale of the vehicle at the end of the contract.
Conversely, the lower the residual value, the higher your monthly payments will be, because the leasing company assumes a greater risk on the resale of the vehicle.
In other words:
- High residual value → Low monthly payments but more expensive purchase option.
- Low residual value→ High monthly payments but purchase of the vehicle at a lower cost.
It is therefore important to evaluate your goals from the start: do you only want to lease the car or would you like to own it at the end of the contract?
What happens in the event of a claim?
In the event of an accident or theft, the insurance does not necessarily reimburse the full price of the vehicle.
Reimbursement is often based on the estimated value of the property at the time of the loss, often calculated according to the Argus or a market estimate.
In a leasing contract, this sum is usually paid directly to the leasing company.
If the residual value was high and the car has suffered a significant depreciation, it is possible that the compensation will not cover the full amount remaining to be paid.
It is therefore important to understand these aspects before signing a contract.
Leasing with or without an option to buy?
A leasing contract may include a purchase option, which allows the vehicle to be purchased at its residual value at the end of the contract.
If you are considering buying the car back, it is best to negotiate a lower residual value to avoid too high a cost at the end of the leasing period.
On the other hand, if you only want to lease the vehicle with no intention of buying it, a high residual value can be advantageous because it reduces your monthly payments.
It is essential to compare these options with other forms of financing, such as car loans, which allow you to own the vehicle from the start and have greater freedom over its use.
Why choose a car loan rather than a lease?
The choice between leasing and car credit depends on your needs and financial freedom.
With a lease, you rent the vehicle without owning it, and a residual value determines its price if you want to buy it at the end of the contract. This type of financing often imposes restrictions, such as mileage limitations or strict maintenance conditions.
With a car loan, you are the owner from the beginning, without any constraints on use. You can resell your vehicle at any time, depreciate its cost as you wish, and even deduct the interest from your taxes. Unlike leasing, you won't have to pay a residual value if you want to keep the car.
If your goal is to have total freedom over your vehicle and not depend on the conditions imposed by a lease agreement, a car loan is a more flexible and advantageous option.
Why is Milenia a reliable partner for your car loan?
If you opt for a car loan, Milenia supports you with simple, transparent solutions adapted to your budget.
By choosing our service, you benefit from:
- A fast, no-obligation process, with an online application in minutes.
- Personalized advice, tailored to your financial situation and needs.
- Full transparency, with no hidden costs or unpleasant surprises.
- Total freedom over your vehicle, because you own it from the start.
Whether you opt for a lease with or without an option to buy, or for a car loan, it is important to anticipate its impact on your monthly payments and on the resale value of the vehicle.
With Milenia, you can benefit from personalised support and find the solution that perfectly suits your needs.