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Glossary Term

Residual Value

The estimated worth of equipment at the end of a lease term.

All glossary terms

In short

Residual value is the estimated worth of financed equipment at the end of a lease term. On a fair-market-value lease, it helps set the buyout price you'd pay to own the asset.

How residual value is used

The residual is a forecast of what the equipment will be worth at term-end, and it shapes your lease from the start:

  • A higher residual means lower payments — you finance less of the asset's value.
  • It helps set the buyout on a fair-market-value lease.
  • It reflects the asset's expected depreciation and remaining useful life.
  • It's an estimate, so the actual market value at term-end can differ.

Why it matters

Residual value is the lever that keeps lease payments low: the more value the lender expects to remain, the less you pay during the term. But it also means the end-of-term buyout on an FMV lease isn't fixed in advance. If you plan to own the equipment, a stated or nominal buyout gives more certainty than relying on a residual estimate.

Common questions

Does a higher residual value mean lower payments?

Yes. If the lender expects more value to remain at term-end, you finance less of the asset during the term, which lowers your payments.

Is residual value the same as the buyout?

They're linked. On a fair-market-value lease the residual estimate informs the buyout, but the actual market value at term-end determines the final price.

General information only. This page is educational and does not constitute financial, legal, or tax advice. All financing is subject to credit review and lender approval. Rates, terms, and eligibility vary by applicant, asset, and lender, and are not guaranteed. Any figures or examples are illustrative. Please speak with a qualified advisor about your specific situation.