Residual Value
Residual value is the estimated worth of a financed asset at the end of a lease or loan term. In equipment finance it is set at origination and directly affects the payment: a higher residual lowers the periodic payment but leaves the lender exposed to the asset being worth less than expected at term end.
How residual value affects the payment
A higher residual means the lessee finances less of the asset over the term, so the periodic payment is lower, but it shifts end-of-term value risk to the lessor. A lower residual means a higher payment and smaller exposure.
Residual risk and why it matters
Residual value is an assumption that ages with market conditions, obsolescence, and asset condition, so lessors track large residual positions as a portfolio risk. Zolvo automates the servicing and monitoring behind equipment finance portfolios; see equipment finance servicing software.