Different Types of Leases
There are two basic forms of leasing available in today’s leasing arena: open-ended and closed-ended. Federal regulations require that the type of lease be clearly indicated on all consumer car lease agreements/contracts.
are the most commonly found contracts used in today’s automotive marketplace. In a closed-end lease agreement, the term of the lease is set in the original contract. This type of lease is sometimes referred to as a “walk-away” lease. The monthly payments are fixed based on the estimated residual value of the vehicle at the end of the lease term. The leasing company estimates the market value of the vehicle at the end of the term, commonly known as the buyout price and sets restrictions on the mileage and wear of the vehicle. At the end of the lease term, provided that the lessee has not exceeded the maximum allotted mileage or wear and tear limits, the lessee can walk away with no further liability. If the vehicle’s actual value is less than the residual when you turn it back in, the leasing company takes the financial loss, not you the lessee. The lessor sells the vehicle and assumes any profits or losses caused by fluctuations in the market value of the vehicle.
are less common than the closed-end lease in today’s U.S. market. In an open-end lease, there is generally a minimum lease term on the lease of one year, after which, the lessee can choose when to terminate the lease. At that point, the lessor sells the vehicle. If the vehicle is sold for a higher price than what was estimated in the lease agreement, the lessee is reimbursed for the profit. Likewise, if the vehicle is sold for less than the estimated price, the lessee must reimburse the lessor the difference. There are no mileage restrictions on this type of lease, because the lessor is guaranteed recovery of the full depreciated book value of the vehicle. For this reason, open-end lease agreements are often more attractive to companies whose mileage is unpredictable. We do not recommend these leases due to the many unpredictable variables associated with this type of lease. With an open-ended lease, it is the lessee who assumes the risk/reward for the resale value of the vehicle at lease termination. Since Tristate Auto Champs only agenda is to be your customer advocate and get you the best price guaranteed, we typically will advise against these kinds of leases. As a consumer, make sure to only lease a closed-ended type lease agreement. The only exception to our rule is if you have a commercial fleet. We can help you decide what best fits the needs of your company.