When banks determine the residual value of new cars, they anticipate consumer negotiations. Residual values are not fixed. Set values sometimes reflect market value, but hardly ever match a best estimate of the going price established by manufacturers. As a matter of fact, manufacturers exploit marketing schemes to boost the residual value of particular models by lowering monthly payments. Leasing instead of buying is rewarded.
Residual leasing is leasing that binds the payee to paying for the part of the car's residual value that was used. The more residual value the car retains, the less the payee will pay for the car lease. Residual leasing for luxury cars is a popular option for consumers who lease frequently.
Select the make and model of the car. Consider that certain models retain more residual value over a leasing term when negotiating. The residual value of the model you select will affect your down payment and monthly payments.
Negotiate trade-ins and down payments. You may be able to forgo a down payment if you have an adequate trade-in. Use the Consumer Guide Report website to look up the residual value for your trade-in.
Negotiate monthly payments. If a manufacturer is currently marketing a particular model, you may be able to negotiate a smaller monthly payment. Check with the bank's Auto Loan department to see if any current deals are available.
Discuss your credit history. Be prepared to show your credit report to get a lower APR on your loan. Mention your credit history when you are negotiating your monthly payments.
Negotiate depreciation rates to get the lowest for your lease term. Rates can vary, so try to lock in.
Residual values are "guesses" at what the car will be worth at the end of a lease. Remember that the rates are not set in stone. Banks look at the performance of past models and consumer tastes when determining residual values.
Definitely use residual value to determine which make or model is best for you. Don't be afraid to look at a nicer model; banks anticipate negotiations. Research. Ask for the Black Book in your bank's Auto Loan department.
If you decide you want to buy after your residual lease is up, you will pay more if the bank has inflated the residual value to give you a lower monthly payment. Discuss your options with the dealer.
- "Car Shopping Made Easy: Buying or Leasing": Jerry Edgerton; 2001
- car image by bright from Fotolia.com