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The residual value is a term used in car leases. It describes the value of the car at the end of the lease. The term "residual value" is also used to describe the amount a business expects to sell an asset for at the end of its useful life.
The residual value is a function of the amount and rate of depreciation on the car or other business asset. The more the asset depreciates, the less its residual value will be at the end of the lease.
The residual value has a relationship to the payments. If the residual value at the end of the lease is high, the monthly payments will be smaller, and vice versa. But the residual value is the amount you must pay at the end of a car lease if you want to purchase the car, so it may not be to your advantage to have a high residual value.
Also Known As: Salvage value
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