The assigned value of the vehicle at the end of the lease that is used in calculating your base monthly payment. The vehicle's future value can be affected by a wide variety of factors and market changes. See the section Future Value. Thus, the residual value is only a projection of the value of the vehicle at the end of the lease.

Some of the factors that affect a vehicle's future value, such as the term of the lease and the mileage permitted, are known at the beginning of the lease, so the residual value can be adjusted accordingly. For example, choosing a shorter term will reduce the age of the vehicle at lease-end and increase its residual value, and choosing more mileage for any given lease term will reduce its residual value. Other factors affecting the value of the leased vehicle at lease-end (such as new engine technology or new-vehicle features) cannot be known until the end of the lease.

Different lessors may assign different residual values to the same vehicle, even when the lease term and permitted mileage are the same. One reason is that different lessors rely on different residual value guidebooks. There are three principal residual guidebooks that independently set residual values for leased vehicles based on their own evaluations and projections of the future used-car market. Different guidebooks are more popular in different parts of the country. Many lessors also factor in their own experience with different vehicles and the local market conditions where the vehicles are being leased. Also, some lessors are willing to take more risk for residual value losses than other lessors and thus set higher residual values.

Residual values can also be affected by marketing considerations. For example, a vehicle manufacturer may increase the residual value of a vehicle to reduce the monthly payment and make the vehicle less expensive for consumers to lease. A lessor not affiliated with a manufacturer may also increase the residual value to increase its volume and market share or to respond to the higher residual values of its competitors. In a closed-end lease, you are not responsible for the difference if the actual value of the vehicle at the scheduled end of the lease is less than the residual value, but you may be responsible for excess wear charges and excess mileage charges if your return the vehicle at lease-end. However, in an open-end lease, the amount you owe at the end of the lease is based on any difference between the residual value and the realized value. See glossary entry Open-end lease. Example