What is the Residual Value or Buyout Price of a New Car?

During your next vehicle exploratory phase, during a new car lease calculations and even during the actual deal negotiation, the Residual Value term will come up to the table. Are you aware of what it means, how it is calculated and where it comes from? On the following article, you'll clarify how it relates to the MSRP and what does it represents.

Pre-Calculated by the Manufacturer

The Residual Value is calculated and estimated by the OEM (Original Equipment Manufacturer). It is the actual fair value they expect TODAY that the vehicle will have in the future under the following conditions:

  • Lease term: 24, 36, 39, 48 or 60 months. When you acquire a vehicle on a lease, the manufacturer estimates that after 60 months (5 years) the car value will be 65% of the original MSRP, to mention an example. Brands like Honda, Toyota & Subaru use to store a lot of value, usually above the 50% after five years.
  • Kilometres per year: 12,000 - 24,000 Kms. How much you use the car will also affect the Residual Value of it at the end of the Lease. Just see this clear example: the remaining value of a Nissan Qashqai after a 60 months lease of 24,000Km/year (total of 120,000Km) will not be the same of another one under the same term but with only 16,000Km/year (total of 80,000Km)

Residual Value Canada: Kia Sportage

Many manufacturers like KIA, calculate the Residual Value of a vehicle once you estimate the payments using their calculators.

You Can Buy Your Car Right After the Lease End

Although this is common mostly on vehicles that retain resale value and that haven't been considerably used (low mileage), you have the option of buying the car right after the lease ends. This means that, if during the lease, you have paid "the part of the vehicle" that you have just "consumed," now you pay the rest.

The Residual Value is the remaining price to be paid to fully "acquire" the vehicle. But in these cases, most people use to take a new lease.

The Better You Know, The Better You Lease

Car Leasing is just the most affordable and less risky way to "own" a vehicle. Did I just say something polemic? For sure, so If you want to dig more on the topic, I suggest you check my other articles about new car leasing benefits:

About the author

Jorge Diaz is a passionate car lover, winter driver & Software Engineer. For the last 10 years, he has built Online Solutions used by more than 5,000 companies across the globe. He founded LeaseCosts in 2016 with the purpose of simplifying and helping Canadians to better understand the complex market of car leasing in Canada. You can connect with him at Leantrepreneurship.com.

Jorge is also the author of Car Leasing Done Right: A Canadian Guide for Understanding & Optimizing Vehicle Leasing Costs, released on Nov. 5th, 2021. It is available at Amazon.ca