Example 3. Life cycle of a 60-month lease and a 60-month loan. This graph shows the typical situation in which the vehicle’s value is less than the residual value at the end of the lease term. The vehicle’s value may be above or below the residual value at lease-end. The graph combines graphs 1 and 2 and shows that the loan balance declines more rapidly than the lease balance over the 60-month period. After 36 months the value of the vehicle is higher than the remaining loan balance but lower than the lease balance. The loan continues to amortize to $0 and the value of the vehicle remains higher than the loan balance. This difference is shown as a shaded area called the consumer’s equity in the vehicle.

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