There are two types of automotive leases available in the United States; an open-end lease and a closed-end lease. Read on to learn about each and their differences.
What is Close Ended Leasing?
- Close-ended leasing is based on a pre-determined number of miles a customer will drive in a year.
- At the end of the leasing term, the customer is responsible for any excessive damage or additional mileage overages.
- Any loss of value, through depreciation of the vehicle, is the responsibility of the leasing companies, not the individual.
- The lessee has the option to purchase the vehicle, at the end of the term.
- The lessee has no responsibility in supporting the vehicle’s resale value.
- The fixed term of the lease is usually between 24 to 36 months.
- Interest rates are fixed with no variation in payments.
What is Open Ended Leasing?
- Open-ended leasing is typically used in commercial leasing.
- The lessee is responsible for paying any difference between the estimated lease-end value (residual), and the actual market value at the end of the lease agreement.
- The total lease costs are calculated at the end of the lease term, and the vehicle(s) under the lease are sold.
- If a loss is incurred at the end of a lease term, it is treated as an additional payment.
- The Federal Customer Leasing Act provides a measure of protection for open-ended leases by restricting the end-of-term liability to no more than the total three monthly payments.
- Open-ended leases include variable depreciation rates.
- Leases are customized in variable terms with no early termination fees or mileage restrictions.