How Lease Payments Work
Lease payments have two components: depreciation (the difference between asset value and residual value divided by the term) and a finance charge (calculated on the sum of capitalized cost and residual value multiplied by the money factor). Together, these determine your monthly payment.
Understanding Residual Value
Residual value is the estimated worth of the asset at lease end. A higher residual means lower monthly payments because you are financing less depreciation. However, if you plan to buy the asset at the end, a higher residual means a larger buyout price.