Open End Lease vs Closed End Lease
It is important to understand the type of car lease to which you agree because it can make a large different at the end of the lease. One important distinction is the difference between an open end lease and a closed end lease. For most individuals acquiring personal cars, a closed end lease is used. An open end lease is used primarily in business ventures.
A closed end lease is also known as a "walk-away" lease, according toLease Guide. When the lease is over you are not responsible for the difference in expected value and actual value. In fact, it is sometimes worth it to buy the vehicle just to turn around and sell it if it is worth more than expected. If the car is worth less, it will be the loss of the leasing company and not you.
You may still have some costs when you return the vehicle at lease-end, but these will be in the form of greater than expected damage or wear and tear and mileage fees.
Closed end leases are used in many businesses. In this type of lease, the lessee has the financial risk. Because this cost can be expensed, it is often less of a significant issue than it would be for an individual leasing a car for personal use. If the car is not worth as much as expected then you may have to pay for the difference in cost. In other words, you will be responsible for the difference in residual value (expected lease-end value) and the market value when the car is turned in. This can be a great amount of money, especially if the car has a lot of mileage or a high amount of depreciation. The residual is often set lower to offset this risk, but a consequence is an increased monthly payment.
Closed end leases have some advantages for businesses. According toVelcor, it can make management of a fleet easier. These leases can be easily customized. It can also be useful because cars for business use may utilize many more miles than those for personal use.
The contract should specify whether it is an open end lease or a closed end lease. No matter what the salesperson tells you, make certain to read through the contract and find this distinction so that you know what you are getting. If it is not specified, make certain that it is added. This can ensure that you get the lease that is right for you.
