More Information about Vehicle Future Value

Comparing future value in leasing versus buying. When deciding whether to lease or purchase a vehicle, one of the items you can compare is the amount of depreciation for which you will be responsible. In leasing, the amount of depreciation is fixed at the beginning of the lease and is stated in your lease document. In buying, the amount of depreciation is unknown until you eventually sell the vehicle, but it can be estimated by using guidebooks or other resources. To estimate, at the time you purchase the vehicle, the amount of depreciation you will end up paying on the vehicle, subtract the vehicle’s estimated future value from its purchase price. To determine the depreciation included in your lease, subtract the residual value from the “Agreed-upon value” of the vehicle stated in your lease (see the Sample Leasing Form). (This depreciation amount will be different from the amount of “Depreciation and any amortized amounts” stated in your lease if other items are included in the gross capitalized cost or if you make a capitalized cost reduction.)

Projecting future value. When purchasing a vehicle, various sources can guide you in estimating the vehicle's future value. Information about the future value and (or) the depreciation you can expect can be found in various publications and also on a number of Internet web sites. If these sources of information on expected future vehicle values are not readily available, you can find projected values in several publications used by the leasing industry (lease residual value guidebooks). In some of these guidebooks, values are given in dollar amounts; in others, values are given as percentages. Both types of guidebooks include instructions on how to use them. Most lease residual value guidebooks for new vehicles use the percentage method for estimating residual values. Example Most lease residual value guidebooks for used vehicles use the dollar method. Example You may want to consult the reference librarian at your local library. There may be a charge for the printed or Internet information.

When you purchase a vehicle, its future value is unknown. The future value could turn out to be more or less than the residual value would have been had you leased the vehicle. If the actual market value of the purchased vehicle turns out to be more than the residual value would have been, you will have gained money relative to a lease because you will have paid for less depreciation than the lease would have required. However, if you lease the vehicle and, at the end of the lease, purchase the vehicle for the residual value stated in the lease, you will have paid the same amount of depreciation you would have paid had you originally purchased the vehicle. Example

If, on the other hand, the actual market value of the vehicle you purchased turns out to be less than the residual value would have been, you will have lost money because you will have paid more depreciation than the lease would have required. Example

If you sell or trade in the vehicle you purchase, you may want to recondition the vehicle, advertise it for sale, and obtain different sale or trade-in offers (see the section Vehicle Return).

When you own the vehicle, you keep any amount by which the resale value exceeds the loan payoff amount. You may get more or less in trade for your purchased vehicle than the residual value that would have been established for the vehicle if you had leased it.