Differences between a Closed-End and an Open-End Car Lease

Car leasing is a practice that has been adopted by the majority of individuals residing in the US. Though some people might argue that it doesn’t encourage as much freedom as those that buy their vehicles, in terms of mileage and period of use, it makes cars considerably cheaper to afford. The periodic payment made during a lease allows an average resident to own a vehicle, even if it’s for a limited time. Car leasing also grants an average and middle-classed resident the chance to purchase a car like VIP and drive the latest versions of car brands that would be incredibly expensive to pay in full.

When going for a car lease, you will be faced with a lot of options before you get the vehicle. One of them would be to choose either a closed-end or an open-end lease. These options would sound quite strange, especially if you’re a newbie. No need to worry below is a detailed explanation of the two terms. This information would enable you to make a better choice when at the dealership.

Closed-End Car Lease

A closed-end lease dealership can also be called a walkaway lease. In this lease type, you are restricted to a particular mileage, as written on your lease contract. You are also limited to a lease period. The vehicle’s condition is in your care. And the cost of damage to the car would be coming out of your wallet. The catch of this lease deal is the overall depreciation of the vehicle’s value; which will be the concern of the dealership or Lease Company.

How this works is that the company determines the residual value of your car. This value is the supposed value of the vehicle after the conclusion of the lease term. This process helps the company to find out the amount you pay for the car every month. The residual cost, leasing fee, and taxes make up your total payments every month. Except for any additional cost resulting from mileage breakage, or wear and tear; you shouldn’t make any other payment for the vehicle below the value of depreciation.

Open-End Car Lease

This type of car lease is almost the exact opposite of a closed-end car lease. In an open-end car lease, you have full control of the vehicle’s mileage and lease terms. But unlike the closed-end car lease, you bear the responsibility of the car’s residual value and actual value. If the residual value of the car ends up being lower than the real value after the lease, you will be the one to make up the differences.

On the bright side, if the worth of the vehicle ends up being higher than the actual value after the lease, you will be compensated by the Lease Company.

For example, if you lease a vehicle when it’s worth $20,000 and turn it in after the lease when it’s worth $16,000; you would have to compensate the company of up to $4,000 of residual value. On the flip side, if it increases in worth of up to $24,000, the company would compensate you with $4,000 as written in the lease deal.