Car Leasing – What Determines Car Depreciation (and the Residual Value)?

The amount that a Contract Car (ie; a car on lease) depreciates across a lease period (usually two, three or four years) is the single most influential factor that determines the size of a monthly payment for a car lease.

However, what are the most important factors that determine the amount a Contract Car depreciates?

In order of importance the top three factors are:

1. the make and model of the car – some cars depreciate much slower than others (eg; Mini, Audi or BMW). Typcially, it is prestige cars that depreciate slowly and this often makes a car lease for a prestige car comparatively much cheaper to lease than more common cars that depreciate quickly.

For example, if a car worth £30,000 depreciates at a rate of 25% over 3 years then the total depreciation cost is £7,500. This means that this car will most likely be cheaper to lease than a car that is worth £15,000 that depreciates 60% over 3 years (ie; £9,000).

2. the period of the lease – some cars depreciate by as much as 50% in the first 24 months and if this ‘fast’ depreciation is spread across 36 or 48 months, then the average depreciation per month will be less;

3. the mileage the lessee will incur in the period – the more miles that a car ‘runs up’ then this increases the ‘wear and tear’ and therefore increases depreciation.

To see the difference in the size of monthly payments for a car leasing for various prestige and other cars visit FinanceAcar.

Simon Norman is a specialist on advising car shoppers on the advantages, disadvantages and complexities of car finance and car leasing. In particular, he has significant experience in advising on how to get the best leasing deals for a contract car.