Saturday, October 20, 2012

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.

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