Residual value is the expected sale price at the end of your planned holding period. It depends on vehicle condition, mileage, supply, demand and changes to comparable models.
With a cash purchase or finance, you receive the future sale proceeds. You also carry the residual-value risk: the actual market price may be above or below your assumption. A cost comparison should therefore include several residual-value scenarios.
Three examples of changing price assumptions
1. New-car price reductions
Significant new-car price reductions can change the relationship between new and young used-car prices. This was visible for Tesla models in 2023, when lower new-car prices also put pressure on comparable used-car prices.
The effect on a particular vehicle depends on model, specification, age and regional demand. Owners see that change in the sale price; with a mileage-based lease, general market-price risk usually remains with the leasing company.
2. Regulation and demand
After the emissions scandal, possible driving restrictions and new emissions rules changed demand for some diesel vehicles. Such changes can affect dealer offers and private sale prices. The effect varies by model, emissions standard and region.
3. Technical development in EVs
Range, charging performance and battery technology continue to develop. New models may change demand for older vehicles. A documented battery condition, an appropriate price and everyday usability remain important resale factors.
How buying and leasing allocate the risk
When you buy, you own the vehicle and receive its future sale proceeds. A higher market price benefits you; a lower one reduces your proceeds. With a mileage-based lease, you return the vehicle at the end of the term. General residual-value risk is included in the leasing company's calculation.
Return conditions still apply
A lower general market price does not automatically create a charge under a mileage-based lease. Excess mileage, missed servicing or damage beyond the agreed wear and tear may still be charged separately.
Leasing therefore limits part of the uncertainty, but it does not automatically guarantee lower total costs. Buying may cost less if the actual residual value is higher or you keep the vehicle for longer.
Residual-value assumptions affect the lease payment
Leasing companies include expected depreciation in the payment. Their calculation may be more cautious when residual values are uncertain. Compare upfront and monthly payments, additional costs and return conditions as well as the allocation of risk.
Young used cars as another option
For many models, percentage depreciation is greatest in the first few years and then slows. A young used car may therefore offer a lower entry price. Review its condition, warranty, finance cost and expected future value.
Compare residual-value scenarios
See how different residual values change leasing and buying.
Conclusion
Residual values can only be estimated. With a purchase, the future market price affects your sale proceeds; with a mileage-based lease, that risk is largely included in the payment. Compare a realistic base case with both a higher and lower residual value before choosing an option.