What is Residual Value in the Van Leasing?
April 30th, 2024
Residual value refers to the estimated value of your vehicle at the end of your van lease. Here, we’ll explain why residual value is a factor in van leasing, what can impact the residual value of your vehicle, and what it means in terms of your end of lease options.
Why does Residual Value matter?
Your van lease cost is calculated by using the cost of the vehicle from the manufacturer, the estimated value of the vehicle at the end of the lease, your estimated annual mileage, and the length of time you want to lease the vehicle for.
If you buy a vehicle, you have paid out for an asset that is going to depreciate over time with use and as the market for that vehicle changes. One of the reasons leasing is more cost-effective than buying is that you’re only paying for the value of the vehicle for the time that you are using it, rather than the total vehicle cost.
At the end of your lease, there will be an asset (your vehicle) that you can trade in for a new vehicle, or return to the finance company who can sell it on. So, residual value is important to both you and the finance company.
What Impacts Residual Value?
We know that having the most valuable asset possible at the end of your lease period is beneficial both for you and the finance company funding your lease. This means, anything that will make your vehicle less valuable at the end of this lease period, is going to impact the residual value.
Mileage is a big factor towards the value of your vehicle. In van leasing, you will be asked what your estimated annual mileage is. If your annual mileage is 10,000 miles, you will pay more in monthly payments than someone who has an annual mileage of 5,000 miles. This is because the vehicle will be worth less at the end of the lease period due to the expected wear and tear from usage.
Damage to your vehicle is another factor that can affect residual value in van leasing. Again, this is because damage to your vehicle will factor towards its value at the end of the lease period.
The BVRLA (British Vehicle Rental and Leasing Association) has put in place ‘Fair Wear & Tear’ guidelines to help categorise how damage is assessed at the end of your lease.
End of Lease Options
Depending on the type of lease you have chosen, you could be charged for ‘Excess Mileage’ or ‘Excess Damage’ (beyond ‘Fair Wear and Tear’) at the end of your contract. Contract Hire agreements where these charges apply, require the vehicle to be returned to the finance company at the end of your lease. They apply these charges as any excess damage or excess mileage will affect how much their asset (your vehicle) is worth when it is returned to them.
Hire Purchase agreements aren’t subject to any de-hire charges for mileage or damage. However, as the end result of a Hire Purchase contract is always ownership – if your vehicle has depreciated in value due to damage or excess mileage you will own a much less valuable asset at the end of your agreement.
Finance Lease agreements are flexible in their end of contract options and don’t incur excess mileage or damage charges. As with other van leasing agreements, the amount of miles you drive over your estimated annual mileage or damage to the vehicle over what is considered ‘Fair Wear and Tear’ will affect the residual value of your vehicle. If you are looking to trade in your vehicle at the end of your Finance Lease, the more your vehicle is worth, the more you will be able to put towards your upgrade!
If you have any further questions on residual value or you’d like to know more about any of the finance options mentioned in this article, please check out our FAQ section or call our Van Leasing Experts on 0117 962 5314