How is residual value calculated on a lease

Residual value in car leasing, refers to the estimated value of a leased vehicle at the end of the scheduled lease period. The longer the lease, the lower the residual value, as compared to the original MSRP sticker price. Residual values play a key part in the calculation of lease monthly payments since leases are based on the difference between residual value and negotiated selling price. The higher the residual, the lower the lease cost for a given selling price. You can negotiate the value to lower your monthly payment within reason.