1. High Residual Value
Leasing experts agree that the most important factor in a lease is the vehicle's residual value, which is a prediction of what it will be worth at the end of the lease term. This "perceived value of the vehicle" is set either by leasing-information provider ALG Inc. or the bank that is writing the lease contract. Often, the residual is discussed as a percentage.
The residual value is important because the higher its percentage is, the lower the payment. A lease amount is determined by the difference between a vehicle's selling price and its residual value. Here's how that works:
Consider two $30,000 vehicles: One has a residual value of 65 percent after 36 months, and the other has a 40 percent residual for that period.
The vehicle with a 65 percent residual value is projected to be worth 65 percent of its original $30,000 price tag after 36 months (65 percent of $30,000 is $19,500). Since a lease payment is based on the difference between the selling price and the residual value, the lease on that particular vehicle would look something like this:
$30,000 x 0.65 = $19,500
$30,000 - $19,500 = $10,500
$10,500/36 months = $292 lease payment per month
A $30,000 vehicle with a 65 percent residual would have a base monthly payment of $292 before taxes, interest and fees.
Here is the other $30,000 vehicle, which has a 40 percent residual value. Here's how the numbers work out:
$30,000 x 0.40 = $12,000
$30,000 - $12,000 = $18,000
$18,000/36 months = $500 per month
Choosing the vehicle with the higher residual percentage would net a savings of more than $200 per month for a vehicle with the same selling price.
This example explains why you can sometimes lease a more expensive car and get a lower monthly payment than you would have been able to get for a less expensive competitor. The more expensive vehicle likely had a higher residual percentage.
So when you're shopping for a lease, the first rule of thumb is to look for cars that hold their value better — the ones that have high residual values. Residual percentages for 36-month leases tend to hover around 50 percent but can dip into the low 40s or be as high as the mid-60s. For a quick overview, try using the phrase "vehicles with the best residual value" in your favorite search engine.
And if you want to calculate your own lease payments, Edmunds can help. Be forewarned: You'll need a fair bit of information from the dealership in order to figure out a lease at home.