Understanding lease end options: residual value vs. market value
Part of the Cartelligent service is a free lease end consultation with one of our lease portfolio specialists. Many of our clients turn in leases that are under mileage and are exceptionally clean. It's natural to wonder if these cars might be worth more than the residual value on the lease contract or if buying out the lease might be a good option. (See Should you buy your leased vehicle at lease end?)
Several years ago, we found that this was often the case. Market value for the leased vehicle was often higher than its residual value. However, recently we've found that most manufacturers have adjusted their calculations so that the residual value can be significantly higher than residual value.
To put this more simply, assume the current market value for a specific vehicle is $15,000—if you went online right now you would find that similar vehicles in your area averaged $15,000 in price. If the lease residual value was $13,000, buying out the lease could be a good value because the lease buy out price is $2,000 under market. What we're seeing lately is the opposite, the same vehicle with a market value of $15,000 has a lease residual value of $17,000 and buying it would actually mean paying $2,000 more than the car is worth.
Below we've listed the average difference between market value and residual value for some of our most leased brands. We've included numbers from 2015 and 2017 for comparison. Negative numbers indicate the lease residual value is higher than the market value, positive numbers reflect the opposite:
The average across all leased vehicles went from -$411 in 2015 to -$2,347 in 2017.
Why are lease residuals tending to be high?
Many auto manufacturers are trying to make leasing a vehicle more attractive. Raising the residual value makes lease payments lower and as a result, more consumers choose to lease their new car. The manufacturer gets the opportunity to lease another vehicle in three years time and gets the lease return to resell as a CPO.
What does this mean for your current lease?
Basically, this means that, if you leased three years ago, you probably got a great deal on your lease—but that buying it out may not be a good financial decision. Your Cartelligent agent can help you make an informed decision about buying out your lease, or leasing or purchasing a new car.
Whether you're a first-time lessee or you're returning your fifth leased vehicle, Cartelligent can make returning your current vehicle simple and efficient while getting you a great price on a new vehicle. Call our team of car-leasing experts at 888-427-4270 or get started today.