What is residual value and how can it affect my car leasing agreement with Creditplus?

By: david.penman     Approved by the Car Finance Advisory Board

Creditplus can help you understand the residual value of your vehicle and how this affects your leasing agreement. If you have a question relating to residual value of your vehicle that isn't answered below, please get in touch using our LiveChat function located to the right of this webpage.

How does Residual Value affect my leasing agreement?

The monthly payments on your car leasing agreement are calculated by taking the difference between the value of the car at the beginning of the car leasing agreement and the residual value at the end of the agreement. This figure reflects the amount of depreciation that's predicted over the course of the contract. If the car has a high depreciation, the monthly payments will cost more, but with a low depreciation the monthly payments will cost less.

What is the difference between Guaranteed Future Value and Residual Value?

Guaranteed Future Value (also referred to as GFV) is the cost of the balloon payment at the end of a Personal Contract Purchase contract that's agreed with the lender at the beginning of the contract, regardless of the actual market value at the end of the contract. Residual Value is the predicted value of a car after a certain amount of time and mileage. To find out more about any of these terms, please visit our Car Finance Terms page.

How is Residual Value calculated?

Residual value is generally calculated according to future predictions based on past models, often using predictions set by trade guides in addition to their historic data. Mileage can affect this prediction, which is why the lender will apply a mileage limit to help safeguard against increased depreciation as a result of high mileage. However, different lenders will also use a range of complex indicators to calculate the residual value, meaning the quoted figure may be different according to different lenders.

Should the lender tell me the residual value at the beginning of the contract?

All reputable lenders will be completely transparent and quote the residual value at the beginning of the contract. If they don't, question why and seek finance with another lender if they still refuse to quote the residual value.

Residual value can be a tricky concept to understand, so if you have more questions, please use our LiveChat function to speak to one of Customer Advisors today.

Published: 16/05/2016
Last Updated:18/08/2016
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