Residual Value

Formal

Used in leasing and Contract Hire - it’s the forecast of value attributed to the item being rented at the end of the primary lease period. This value ‘risk’ is pre-determined and taken by the supplier or other third party. This arrangement can make the use of the asset for the customer much cheaper than ownership over that same period.

Real-world Example

A leased car is expected to be worth $8,000 at the end of its 3-year lease - its residual value, which the leasing company uses to help set the monthly payment amount.