Residual values (or RVs) concern how much a car is worth after several years; the higher the figure, the more the car is worth used.
What do I need to know about residual values?
New car buyers will want a car that has a high residual value – as you’ll get more back when you come to sell it – while used buyers can benefit from those that lose value quicker, as these are cheaper to buy second hand.
Typical residual values show how much a car is worth after three years and 36,000 miles of driving. A car with a 50% rating will be worth half its original value, while one with a 35% value will be worth just over a third of the list price.
How do I make the most of residual values?
If you’re buying new and plan to sell the car on – or part exchange it for a new model in a couple of years – you’ll be better off choosing a model with strong residual values. This is because there will be less difference between the original price you pay and what you get back from the new buyer, so you’ll have paid less overall.
This is even more important if you plan to finance a car, because your monthly payments are calculated from the difference between the RRP and the predicted value at the end of the contract.
A £40,000 car that is expected to be worth £20,000 after three years – a difference of £20,000 – should cost less per month than a £30,000 model that is only worth £8,000 at the end of the contract – a loss of £22,000. As a result, one of the key figures you’ll want to look at when comparing the cost of car finance is not the list price but the monthly instalments (provided the deposit, contract duration, mileage allowance and other terms are the same).