What is the residual value of a car loan?

I keep seeing the phrase residual value on car loans. What does this mean?

Residual value isn’t a phrase commonly used for car loans, but it’s often terminology utilized in car leases. That said, residual value refers to how much a vehicle is worth at the end of a lease term. The lender uses this value to determine how much depreciation the car will have and factors that determination into what you pay each month for your lease.
Unfortunately, you can’t do much to impact the residual value of your vehicle. It’s set by the lessor, so even keeping meticulous care of your car, which is usually required anyway by the terms of the lease, won’t keep this value up.
Car loans don’t use this phrase; it’s replaced by actual cash value. Actual cash value refers to the value of your car at any given time during a car loan. Most commonly, car insurance companies use this value to determine payouts if your car is totaled in an accident. Additionally, lenders may use the actual cash value if you want to get a cash-out refinance or you want to use your car as collateral for another loan.
While residual value may not impact your car insurance needs, don’t leave money on the table needlessly. Use the number-one-rated car insurance app, Jerry, to help you save money. Jerry compares personalized rates from more than 50 top providers and delivers the best deals to your phone in minutes for free. The average Jerry driver saves $879 a year on car insurance!
Eric Schad
Answered on Nov 24, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.

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