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Closed-End Leases
Most consumer leases are
closed-end leases. With this type of lease, you make a predetermined number
of payments for a specified period of time. At the end of the term, you
return the vehicle. At that time, you have no contingent responsibility for
the vehicle's value. In other words, any loss of value through depreciation
of the vehicle is the responsibility of the leasing company. Of course, this
excludes physical damage, excess wear and tear, or high mileage.
Open-End Leases
Most business leases are
structured as open-end leases. With this type of lease, you "risk" that at
the end of the lease the vehicle's market value will be comparable to the
amount specified in the lease contract. This is called an "estimated
residual value." If the vehicle is resold for an amount equal to the
estimated residual value, you owe nothing. If it is worth more, you receive
the difference. If it is worth less, you may owe all or a portion of the
difference-often called an "end-of lease payment."
The Federal Consumer
Leasing Act provides a measure of protection for lessees in open-end leases
by limiting the end-of-term liability to no more than the total of three
monthly payments.
Back to Leasing 101
Glossary
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