Lesson 20 of 25 · 6 min

What a lease-end residual does

The number written at the start is an assumption, and the mark at month thirty-six is a different fact.

A residual gap, the amount by which the actual mark at term-end sits below the residual the contract named, is a mark that came in light. Lesson 18 treated $16,848 as a scheduled future value. This lesson treats it as an assumption, and compares it with a print.

Same residual of $16,848. The mark at month 36 is $15,210. Residual gap is $16,848 − $15,210 = $1,638. Excess miles: 3,000 × $0.28 = $840. Those are end-of-term charges, not a loan balance. They are not amortizing. They arrive because the contract's assumed mark and assumed use were not the facts at month 36.

Track 1 lesson 3 draws the same surprise between market value and the number a lender will actually lend against. Advance rate is a lender-set discount on a present mark. A residual is a contract-set mark on a future date. When the future date arrives, the print can sit below the name. The gap is then a charge, not a rewriting of the thirty-six payments already made.

The $18,070.92 of payments from lesson 19 has already been paid. The $1,638 and the $840 sit on top of it, as term-end lines. They are not a deficiency in the loan sense of lesson 24. They are the bill for a residual that was a name, and for miles the contract priced in advance at $0.28.

A residual is an assumed future mark. The print at month 36 is a fact. The difference is a term-end charge, not a leftover loan.

Key terms

Residual gap: Residual minus the actual mark at term-end, when the mark came in light. An end-of-term charge, not a loan.
Excess miles: Miles above the contract's allowance, priced at a stated per-mile figure. Also a term-end charge.
Assumed mark: The residual as it was written at the start. A name, not a forecast that the print is required to match.

Worked example

Month 36, two term-end lines

Residual $16,848. Mark at month 36 is $15,210. Excess miles 3,000 at $0.28.

Residual: $16,848
Mark at month 36: $15,210
Residual gap: $1,638
Excess miles: $840
What these are not: A loan balance

The contract assumed $16,848. The print was $15,210. The $1,638 and the $840 arrive as charges, not as a continuation of the $501.97.

Check yourself

Residual $14,200. Mark at term-end $12,880. Excess miles 1,800 at $0.32. What is the residual gap, the excess-miles charge, and are they a loan balance?

A residual gap is the everyday version of a mark below the value a contract assumed, the same surprise Track 1 lesson 3 draws between market value and the number a lender will actually lend against. Open Advance rate versus market value →

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.