Closed-end Leases – AKA (“walk away, long term rental, operating lease, short term lease”) This will be most of our summer camps, tour and adventure operators and colleges – and other business that have need for 1-time need, or short term seasonal or cyclical needs
Closed-end leases are most common for consumer leases today. This type of lease allows you to simply return your vehicle at the end of the lease and have no other responsibilities other than possible payment of excessive damage or mileage charges.
Closed-end leases are based on the concept that the number of miles you drive annually is fairly predictable (12,000 miles per year is typical), that the vehicle will not be driven in rough or abusive conditions, and that the vehicle’s value at end of the lease (theresidual value) is therefore somewhat predictable.
At the time you lease, the leasing company estimates the vehicle’s lease-end residual value based on the expected number of driven miles. If the vehicle is actually worth less than the residual when you turn it in, the leasing company takes the financial hit, not you.
On the other hand, if the vehicle is worth more than the residual, and you have the option to purchase, you may want to buy the vehicle and keep driving it — or sell it and make a profit. This happens frequently.
Open-end Leases – AKA and VARIATIONS include (“capital lease, finance lease, commercial lease, lease with required balloon, Lease with conversion – required buyout) This will be the rent of the market, long term fleets, cycling and rotation to cover ongoing use, high miles, and special equipment.
Open-end leases are used primarily for commercial business leasing. In this case the lessee, not the leasing company, takes all the financial risks, which is not so much a problem for a business, since the cost can be expensed. Annual mileage on a business lease is usually much greater and less predictable than the average 12,000 miles-per-year of a non-business lease.
In open-end leases, you are responsible for paying any difference between the estimated lease-end value (the residual) and the actual market value at the end of the lease. This could amount to a significant sum of money if the market value of your vehicle has dropped or you drive many more miles than expected. Often, the residual for an open-end lease is set much lower than for a non-business closed-end lease, which reduces the lease-end risk, but can significantly increase the monthly payment amount.
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