Residual Value and Car Lease Buyouts: Your Ultimate Guide

If you have a leased car (or are thinking about leasing), you have probably seen the term residual value a few times. But what exactly is residual value, and what does it mean for you?

Let’s talk about how car leases work and what residual value is.

How do car leases work?

Leasing a car is essentially renting a car. The dealership owns the car and holds the title, but they give you temporary ownership for a set period of time. While you have the car you are responsible for maintaining it and not overusing it (a mileage allowance will ensure this). Leases are usually 24-36 months, but they can be longer.

While many people in the United States prefer buying cars, more than a few prefer leasing a car instead. In 2022, about one in four cars on the road in the US are leased. So why exactly would some people prefer leasing over buying?

Your monthly payments will be lower

When you lease a car, your payments will be much lower than if you were to finance it. This is because you are really making payments on the depreciation that will occur while you are leasing the car, not on the total amount of the car.

You need less money up front

Not only will your monthly payments be lower, but when you lease a car you will need less money up front. In many cases you can lease a car with no money down. Any fees that you are required to pay can usually be rolled into your monthly payments.

You will not need to sell your car afterwards

When you lease a car, you can simply hand the keys back at the end of your lease period. You do not need to worry about selling the car when you are finished.

You can get a new car every couple of years

Some people love having the latest and the greatest, and leasing can allow you to get a new car every few years. This makes it easier to stay up to date with the latest technology (and who doesn’t love the smell of a new car?)

You can maximize tax deductions

If you are a business owner or are self employed, leasing a car will provide more tax advantages than buying a car. When you lease you can write off both the depreciation costs and the financing costs, which is usually more than you can write off when you purchase a car.

What is Residual Value?

There are a lot of terms that you should be familiar with when you decide to lease a car. Lease payments are calculated as follows:

Capitalized Cost - Capitalized Cost Reductions - Residual Value + Interest + Fees

Let’s take a look at what these terms mean.

Capitalized Cost

This is the actual price of the car which will serve as the basis for all of your lease payment calculations. This price can be negotiated, just as you would negotiate if you were buying the car outright.

Capitalized Cost Reductions

Capitalized cost reductions are any discounts that the dealership may apply to your lease. This includes any rebates, incentives, and upfront capital that you may put into your leased vehicle.

Residual Value

The residual value of a leased car is the expected value at the end of the lease term.

Money Factor

The money factor is the financing charge of the lease. This number is a small decimal that might feel foreign to most people, so multiplying it by 2400 can give you an equivalent APR.

How is Residual Value Calculated?

One of the most important factors in your lease is the residual value of the car. The residual value of your leased car is based on three factors:

The capitalized cost
The lease term
The residual lease value percentage

The capitalized cost of the car is simply the sale price of the car. Your lease term will depend on what you select, but it is typically 24-36 months. The residual lease value percentage is somewhat subjective. It is what the car is expected to depreciate over the life of the lease.

If you have a leased car with a capitalized cost of $30,000, and the car is expected to decrease in value by 50% over your three year lease, then the residual value of your car is $15,000. The residual value of your lease is important for two main reasons:

It will determine what the monthly payments on your leased car will be
It will determine what the buyout price of your car will be at the end of the lease term

Unfortunately you are usually not able to negotiate the residual value of your car. It is typically a standard price based on what the dealer believes the resale will entail. But you can negotiate on the capitalized cost of your lease.

Should I Buy My Leased Car?

When your lease ends, you might be wondering what options you have. You ultimately have three choices when your lease ends.

You can keep leasing

If you like leasing, you may simply want to continue leasing a car. You can simply return your current car and resign for a new lease with a new car. This is the simplest option for most people and iit is also the best option for most dealerships. When you keep leasing, you will restart (and negotiate) with a new car, and the dealer can sell your old lease as a certified pre-owned car. In order to return your car with no fees or issues, you will need to return your leased car in good condition and without going over your mileage allowance. If there is significant wear and tear, noticeable damages, or you have gone over your mileage allotment, this could mean you owe the dealership money.

You can end your lease and walk away

If you aren’t happy with leasing, you can also choose to turn in your lease and not lease again. Again, in order to return your car with no fees or issues, you will need to return your leased car in good condition and without going over your mileage allowance. If there is significant wear and tear, noticeable damages, or you have gone over your mileage allotment, this could mean you owe the dealership money.

You can buy your lease out

But maybe you don’t want to say goodbye to your car. Or maybe you know that you have racked up a lot of miles (way over your allotment) and you are going to owe some serious fees. Or maybe you know that there is quite a bit of wear and tear and you will similarly face some big fees. Whatever your reason is, a lease buyout is often a great solution at the end of your lease.

How to decide which is best for you

If you are trying to decide what is the best option for you at the end of lease, there are some questions you can ask yourself to help decide.

To decide if you want to keep leasing, ask yourself the following:

Do I like leasing?
Have I been able to stay under the mileage allowance?
Have I been able to avoid major wear and tear?
Do I like having a new car?
Am I ok not being able to customize the car to make it my own?

If you answer yes to most of the above questions, then leasing again might be a good move.

To decide if giving up your lease and moving on is a good idea, ask yourself the following questions:

Do I dislike leasing?
Is it hard staying in the confines of the lease agreement?
Am I indifferent when it comes to having a new car?
Do I have another way of getting around (a different car or a public mode of transportation?)

If you answer yes to most of these questions, then returning your lease and moving on might be a good idea for you.

But for many people, a lease buyout will be their best option. This is because today’s used car market has a lot of demand. That means your car’s resale value is almost guaranteed to be much higher than your residual value. In other words, you will be able to buy your lease for much less than you will be able to sell it for. Ask yourself the following questions to decide if a lease buyout is right for you.

Do I like my car and want to keep it?
Do I want to sell my car privately and make a profit?
Have I gone over my mileage allowance that will result in major fees?
Do I have significant wear and tear that will result in major fees?

If the answer is yes to any of the above questions, a lease buyout is probably the best option for you. And a lease buyout loan is an easy way to achieve this.

That's how car leases work and how you can decide if buying out your car lease is a good idea.

Auto Approve specializes in car lease buyout loans and can help you decide if a lease buyout is right for you. Contact Auto Approve today to chat with one of our agents today!

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The 3 Best American Road Trips To Take This Year

Thinking about a road trip this year, but not sure which of the many amazing classic American road trips to take? You’re in the right place.While it’s hard to say that any one singular road trip is the best most beautiful roast trip to take – the United States has tons of interesting terrain, stunning vistas, and cultural landmarks from sea to shining sea – we’ve compiled three favorites that you can start planning right now.There are many more great options. Traveling Route 66 or visiting the Grand Canyon are evergreen classics. But these uniquely excellent drives were selected for weather, accessibility, and combination of natural wonders and modern conveniences. American Road Trips to Take In 2025What’s the best road trip to take for you? Only you can decide that, but it’ll depend on who you’re driving with (or if you’re flying solo!), where you’re starting your journey, and how long you want to spend in the day, per car and overall. Each of these road trips can be shortened or lengthened with fewer or more stops, and each has their pros and cons. And once you’ve picked one, check out our road trip planner.1. New England: Jamestown to Acadia National ParkIf you’re craving a seaside getaway, it doesn’t get much more iconic than a drive up the New England coastline. This is a great option for summer and fall road trips. During the summer, you get cooler temperatures than much of the US, sea breezes, lobster rolls, and beach days. During the fall, you get stunning fall colors, script temperatures, bonfires, and apple pie.This is a particularly great road trip for families and those not inclined to spend endless hours in the car, since the total driving time is fairly short and the stop options are plentiful, from bustling city life in Boston to the amazing restaurants of Portsmouth, NH, and Portland, ME, to the lighthouses, ocean views, and sprawling forests of coastal Maine and Acadia National Park. Driving time (one way without stops, approx.): 6 hoursStop ideas: RI: Jamestown, Providence; MA: Cape Cod, Boston, Salem; NH: Portsmouth; ME: Ogunquit, Portland, Freeport, Augusta, Bar Harbor, Acadia National Park You won’t want to make all these stops in a row, but if you’re driving round trip, you can always see the LL Bean boot in Freeport one way and make time for Salem’s witches (or lack thereof) on the way back.One word to the wise: This road trip won’t work in the winter due to the weather in the Northeast. Driving in winter conditions doesn’t make for a relaxing vacation!2. Smoky Mountains: Asheville to MemphisIf you’re interested in a road trip through classic Americana, a trip from North Carolina to Tennessee might be just the ticket. By stopping in Nashville and Memphis, you can see much of the heart of American music history, and the barbecue across the region is iconic. And the culture isn’t half of it – this drive takes you through the stunning Smoky Mountains and is widely considered one of the most beautiful road trips you can take.Driving time (one way without stops, approx.): 8 hoursStop ideas: NC: Charlotte, Asheville, Great Smoky Mountains National Park (crosses multiple states); TN: Johnson City, Pigeon Forge, Knoxville, Chattanooga, NashvilleA few of these are out the way from the others – stopping Charlotte would really mean starting or ending in Charlotte, and Johnson City’s out of the way, but a fine place to stop if you choose to focus on exploring the Smoky Mountains.This trip is going to have the hottest weather of the options on this list in the summer, but nothing compared to what you might experience in Zion or Big Bend. The Smoky Mountains and Asheville stay pretty cool, but by the time you get to Memphis, depending on the time of year, it can get into the 90s Fahrenheit. The good news is, all these places stay relatively temperate through the winter, so there’s no bad time of year to visit.Be prepared: Cell service is weak or non-existent in some parts of the Smoky Mountains, so you’ll want to make sure you have a paper map and a well-stocked car emergency kit, just in case.3. Pacific Northwest Meets Big Sky Country: Seattle to YellowstoneWhen it comes to iconic American experiences, Yellowstone National Park is high on the list. But to get the full flavor of the Pacific Northwest and Big Sky Country, start or end the drive in Seattle. Taking time to stop in Washington’s wine country and see Puget Sound adds another incredible set of sights and experiences, and Seattle makes a great jumping off point to visit any one of Olympic, Mount Rainier, or North Cascades National Park. From there, you’re diving into the heartland, whether you want to head up to Glacier National Park, down to Grand Teton, or straight to Yellowstone.Driving time (one way without stops, approx.): 11.5 hoursStop ideas: WA: Seattle, Puget Sound, Washington Wineries, Spokane; MT: Glacier National Park, Butte Historic District, Bozeman, Big Sky; ID: Boise; WY: Grand Teton National Park, Yellowstone National Park:This is clearly the most time-consuming, robust road trip of the three. If you’re looking for a big trip, this is the one. Yes, it’s a commitment, but worth it for the stunning views and once in a lifetime experiences. Just remember, when you’re spending a lot of time in National Parks, you want to make sure you plan your road trip meticulously. Gas stations and places to stay the night can be few and far between, and some things may book up months in advance.Don’t have a ton of time but want to see Big Sky Country? You can also fly into Yellowstone Airport (WYS) and land just two miles from Yellowstone National Park.Which of These 3 Beautiful Road Trips In The United States Sings to You?There’s no wrong choice – you want to choose something that fits the amount of time you have, your budget, and your interests.Want to spend more on your dream road trip and less on your monthly car payment?Most people are paying more than they need to on their auto loan, thanks to dealership rate markups! AutoApprove can help you find a better rate in just a few clicks. Tell us a bit about your vehicle – no commitment required – to find out how much you could potentially save through refinancing. An AutoApprove representative will help you find the deal that’s right for you, and once you’ve selected your refinance, we do the paperwork for you, easy as that!That means more money in your pocket for the things that matter most – whether that’s a soul-searching solo trip or an unforgettable family vacation.Get your free quote now.

Useful Skills You Can Learn While Driving

Have you ever considered learning while you drive? Whether you want to make better use of a daily commute or are heading out on a long solo drive, if you want to learn a skill from behind the wheel, we have some ideas for you!The key to learning on the road is to choose something you can do with just audio media – and to make sure nothing you do is so engrossing that you lose focus. It’s important that you still drive safely, no matter what. Essentially, we recommend skills you can learn from an audiobook or podcast and repetitive activities that allow you to build up your knowledge or talents over time.Let’s take a look.Things You Can Learn While DrivingThe average American driver spends, according to a AAA survey, just over an hour in their car every single day. Why not find ways to be productive with all that time? Here are some things you can pick up while you drive.1. Learn a LanguageThis is probably the most popular skill to tackle in the car. Whether you’re brushing up on a language you learned in high school, preparing for a trip, trying to improve your chances at a new job, or learning just to stay sharp, there are tons of good reasons to learn a language while you drive. And, yes, while you’ll also need to supplement with written lessons, you can work on your listening and speaking skills in the car.Depending on which language you want to learn and your level, you’ll need different resources, but here are a few ideas for ways to get started:Starting from 0: Listen to podcasts that teach you the basics (for example, Pimsleur and LanguagePod101 both have podcast-based language lessons)For skill building: Listen to programs designed for language learners (for example, News in Slow is designed for people currently learning at a beginner to intermediate level to practice listening comprehension) For advanced learners: Grow your vocabulary and get closer to fluency by listening to music or news in your target language and trying to capture any unfamiliar words, phrases, or ideas2. Listen to the Sounds of NatureIf you’re interested in the natural world, you could use the time to learn things like the calls of birds local to your area. Avid birders in particular might find this interesting – and there are many resources for birders, since it’s such a popular hobby (BirdNote Daily is a good option) – but resources exist for frog fans and other animal lovers as well, dependent on your region. And there’s no reason you need to stick to your own backyard! Noisy by Nature is a kid-focused podcast that introduces the sounds of Australian wildlife (and is, frankly, fascinating for all ages).As an added bonus, nature sounds can also be relaxing, which is helpful when you’re stuck in traffic in a 20 minute slowdown.3. Write Better EmailsWhether you’re an English learner, a complete word nerd, or someone who struggled with writing in school and wants to up their email game, there are tons of great podcasts about English grammar, word usage, and how people speak. A few top recommendations include: Grammar GirlThe AllusionistVocal FriesYou’re Saying It WrongWebster's Word of the DayExpanding your vocabulary, mastering complex grammar rules, getting into the nitty-gritty of style, and discovering common malapropisms and mistakes can make you a better writer, reader, and conversationalist.4. Level Up Your Financial LiteracyThere are tons of great personal finance podcasts being made right now. If you’ve never spent much time thinking about budgeting, saving, or your own attitudes toward money, learning about the basics of finance while you drive could be a huge help!Planet Money, which covers current events in the world of money and investment, is a fascinating and informative podcast, while So Money, Money For the Rest of Us, and Afford Anything are a few of the many long-running hits in the finance space. Read reviews and find a podcast that fits your taste – and just remember, no podcast gives specific advice, so ask a professional before making big money moves!Trying to be smarter with money?You don’t need to learn any new skills to refinance your vehicle and start saving money. Most people are paying more than they need to be on their auto loan. A refinance can help you secure a lower rate and pay less. Plus, it’s easy! AutoApprove can help you find the right deal for your unique situation – and do the paperwork for you.Get a free, no-commitment quote to see how much you could save.5. Practice Using Your VoiceWhether you’re a nervous public speaker or thinking about getting into amateur opera, the car is the perfect place to get vocal reps in. There are tons of voice teachers making content online – you could find a vocal warm-up to try while you drive, or look up exercises in advance and put them into practice when the car door is closed.Whether you rehearse a presentation or sales pitch, practice improvising speeches, or sing do-re-mi, the car is a rare place where you can let yourself be as noisy as you want, take advantage of it!6. Build Your Understanding of MathRegardless of your current level of math expertise, you can skill build while in the car. Some people work on basic skills like solving simple number problems, memorizing multiplication tables, or learning more of the digits of pi. Or, if you prefer to simply listen, there are many engaging math listens that can make you fall in love with math. A few top podcast options include: The Joy of XBreaking MathMy Favorite TheoremOpinionated History of MathematicsLeveling up your understanding of math can help you see the world in a new light! And hey, maybe you can impress your friends with your new intel.7. Learn About the WorldLast but certainly not least, there are so many great educational podcasts about all manner of things, from history to economics to niche scientific fields. Taking the time to simply learn broadly about different topics that interest you wherever you can is a very productive way to spend your time in the car. Some of the best options happen to overlap with our recommended podcasts for long drives, like Ologies, 99% Invisible, The Happiness Lab, and Revolutions. But the thing that interests you most when you set out on the road is always the best option, whatever that may be – even if it’s something silly like the workings of ‘90s cars or learning to understand Morse code. Whatever you choose, expanding your worldview and learning something new is always a good choice!And Those Are Seven Useful Ways To Spend Your Driving TimeMost of us spend quite a bit of time behind the wheel, trying to make something of that time is an admirable pursuit! From language learning to amateur opera performance, there’s always something interesting to do to pass the time and challenge your mind.But refinancing your vehicle doesn’t take any time at all.You could be paying less monthly on your auto loan, putting more cash back in your pocket for the things that matter most. Find out how much you could save with just a few clicks and no commitment. Get your free quote now.

5 Things Every Car Owner Should Know

Let’s talk about five of the essential things every car owner should know.There are tons of skills you come by naturally as you start driving. Some things you learn for your drivers license exam, some skills you pick up as you start driving. But there are a few things not everyone knows how to do that can make you a better car owner and help you feel more confident on the road.These are some of the top skills you need to take time to learn once you own a car. Let’s take a closer look.Essential Skills for Drivers and Car OwnersTake a peek at the list. Do you know how to do all of these things? Most people will have learned at least some of these skills naturally, but taking time to really master them can help you drive safer and keep your car in great condition longer.1. How to Check and Change a TireIt’s important to get to know your tires, and recognize the right tire for your vehicle. But buying the right tires is only the beginning – tire maintenance and tire changing are super handy skills for every driver. The same is true for recognizing, checking, and changing or replacing fluids like engine coolant, brake fluid, windshield washing fluid, transmission fluid, and engine oil. If you see a liquid coming out of your vehicle, being able to recognize what fluid it most likely is and whether or not it constitutes a safety hazard is key.To get you started here are the essentials of changing a tire:Find somewhere safe to park on a level, firm surface.Turn on your hazard lights.Gather your tools: spare tire, car jack, lug wrench, and your owner’s manualReview any important information in the manual about tire changes for your specific vehicle Loosen but do not remove the lug nuts (which may be under the hub cap)Position the car jack at your vehicle’s jack points based on the instruction in the car owner’s manual (sometimes marked with a notch on the chassis)Slowly raise the car with the jackFinish loosening and remove the lug nuts, keeping them somewhere you can easily find them again where they can’t roll awayRemove the flat tire and replace it with the spare, lining the spare up with the wheel studsReplace the lug nuts and gently start screwing them in by handLower the car Use your lug wrench to tighten the lug nutsPut all your equipment back where you usually keep itCheck tire pressure for all tires (you may want to go to a garage to make sure everything’s good to go and your tire pressure is even)Return to the road, driving slowly and carefully if you’re driving on a donutPracticing changing your tire a few times at home can make it much less stressful if and when you need to change one on the road.2. How to Deep Clean Your Car YourselfWhile automatic car washes are handy and typically fairly affordable, deep cleaning and detailing your car can get expensive and time consuming. Knowing how to keep your car clean and how to handle stains and wear and tear on the inside and outside can improve your driving experience. After all, according to AAA, American drivers spent an average of 60.2 minutes behind the wheel every day as of 2022. Making that space clean and comfortable can help that hour of driving feel less stressful.Plus, deep cleaning your car yourself can save you money, and some people find it meditative!Speaking of saving money…Here’s one more thing every car owner should know how to do: lower their car payment quickly and hassle-free with Auto Approve!Get a free quote to see how much you could save.3. How to Read A Paper MapOnce a ubiquitous skill, knowing how to read a paper map is less and less common with the rise of GPS and digital map apps for the phone and in-car systems. However, it’s important that drivers of all ages master this skill and keep it sharp to be safe. You never know when you could lose service or battery power. Having a map in your glovebox and knowing how to read can help save headaches should you land in a tough spot. The last thing you want in the case of a breakdown is to add not knowing where you are to an already stressful situation.And reading a map isn’t all – all drivers should have on hand and know how to read their vehicle’s manual. You never want to be stranded somewhere trying to guess the meaning of an alert you’ve never seen before!While reading a map might not be absolutely essential when you’re staying close to home, it can come in handy if you want to plan a road trip – and even more so when you hit the road and venture into new areas further from home (and, depending on where you’re heading, further from robust network coverage!).4. How to Drive in Bad WeatherGiven shifting norms for how often we see major storms – and new types of storms hitting areas that once rarely saw, for example, snow storms or hurricanes – knowing how to drive, and when not to drive, in all kinds of weather is an absolute must.Driving in winter storms or heavy rain can mean different risks and challenges than, say, very strong winds or a heatwave. Prepare for all possibilities by brushing up on your driving skills and keeping an emergency kit in your truck.In general, when the weather is crazy and you’re on the road, slow down, leave extra space between you and the car in front of you, and remember that if you start to slide, the best thing to do is take your foot off the gas and gently steer the front of your car toward the direction you want it to go.5. How To Recognize Warning Signs from An Old CarLast but certainly not least, assuming you do everything right and your vehicle serves you well for over a decade, you’ll want to start keeping an eye out for signs of wear and tear that might mean a car is on its last legs. There’s a rule of thumb called the 30/60/90 rule in auto maintenance that suggests you should take your car in for servicing and preventative maintenance every 30,000 miles. This is true regardless of how long the vehicle’s been on the road and whether or not it’s showing any of the major old car warning signs. Preventative maintenance can help catch problems early and let you drive with confidence even after years with your vehicle. If everything’s looking good, you just need to keep an eye out for rusting, brake issues, bumping or bouncing, or a persistent check engine light. And One More Thing Every Car Owner Needs to Know…How to lower their car payment! Auto Approve can help you lower your vehicle payment in minutes.Most people are overpaying on their auto loanIf you got your vehicle from a dealership, there’s a good chance you’re overpaying on your auto loan, thanks to dealer markups on rates. Auto Approve can help you find out whether you’re eligible for a better rate and start paying less through refinancing. To get started, all you have to do is answer a few questions, no commitment required. Then, an Auto Approve associate can help you find the best deal for you. Once you choose your refinance, Auto Approve does the paperwork, making the process quick and easy!Get your free quote to see how much you could save today.

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What is Residual Value on a Car Lease?