![]() However, if you're planning to sell the car after a few years, you'll still benefit from choosing a model that retains its value well - as you'll get more for it when you do trade it in. Residual valuesA residual value or balloon payment is where an amount of the total value of the car is deferred or postponed to the end of the contract. A car with a higher list price will always cost more per month than one with a lower value (provided the contract terms are the same). On the other hand, it’s the cash price that's most important when it comes to Hire Purchase monthly payments. 12,000 Resale Value / 5 Year Ownership 2,400 Cost Per Year. And while residual value is pre-determined and based on MSRP, resale value can change based on market conditions. It refers to the vehicle's worth after depreciation, mileage, and damage. Some £30,000 cars cost less per month than other £25,000 ones, for instance - as the cheaper car could lose value more quickly This is an important consideration if you're intending to hand the car back at the end of your finance period. Resale value is a similar concept that applies to a vehicle you buy rather than lease. ![]() If you’re looking to get a car on PCP finance for a set monthly budget, therefore, it’s best not to focus too much on cash prices, as higher cash prices don't necessarily result in higher monthly payments. This is because a car that has lost more value while you were completing your monthly payments will be left with a much smaller final payment at the end, so there is a light at the end of the tunnel in that sense. For example, if there is a considerably big market in used cars, this can be used to calculate the residual value for a similar type of car. It is the most defensible approach which is used. However if you're intending to keep the car at the end of the finance period, it might be worth paying off those bigger monthly sums. When the residual value is calculated, it is compared to the value of comparable assets, which are traded in a well-organized market.
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