When leasing a car, individuals need to be familiar with the different types of leases that are available. Consumer leases essentially come into two categories, namely, open end and closed end. There is a substantial difference between these two categories; this difference needs to be understood before signing the lease contract. According to the federal regulations, it is imperative to mention the lease type on all contracts of leasing.
Open-end leases are used in commercial business leasing purposes. The lessee, instead of the leasing company is liable for all the financial risks in this kind of lease. However, this is not considered to be too much of a problem as the cost can be expensed, as the annual mileage on a business lease is usually much greater than a non-business lease. The lessee is also responsible for paying the difference amount between the actual market value and the estimated value once the lease period is over. This difference can reach to a substantial amount of money if the car’s market value has dropped significantly or it has been overdriven. An open-end lease is considered much less risky, as the interest rate is much lower than a closed-end, non-business lease. However, the monthly payment of an open-end lease is more than that of a closed end one.
Closed end leases, also known as ‘walk away’ leases are the most common of the present consumer leases. A closed end lease simply allows the lessee to return the vehicle once the lease period ends without any other responsibilities to take care of except paying for extreme damage to the car or additional mileage charges. The number of miles driven by the lessee is usually predictable in closed end leases; thus, the value at the end of the lease period also becomes predictable unless the car is driven in abusive or excessively rough conditions.
While leasing, the leasing company estimates the car’s residual value and then prepares the contract. However, it is essential to read the contract properly before signing it in order to avoid complications at the end of the leasing period.
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