Most people lease cars so that they can save money on their monthly car payments and avoid maintenance problems along the way. In some cases, this plan can backfire, and you can be forced to pay a large amount of money on the back end of the transaction. With an open-ended lease, you are responsible for the value of the car at the end of the term.
Open-Ended Versus Closed-Ended
The two types of lease agreements that you can have with a vehicle are open-end and closed-end. With a closed-end lease agreement, you are responsible for any damage to the car when you turn it back in to the dealer. This is the most common type of lease agreement in the auto industry. With an open-end lease, you are instead responsible for the residual value of the car and you have to pay the difference between what it is and what it should be.
How it Works
When you have an open-end lease, you could potentially have to come up with a large amount of money at the end of your lease term. For example, if the early termination payoff of your vehicle is $12,000 and the dealer says that your vehicle is only worth $9,000 at the end of your lease term, this creates a difference of $3,000. You would have to come up with the $3,000 to pay the dealer back.
Transferring Risk
One of the primary reasons that automotive dealers use open-end leases is so that they can transfer risk to the lessee. When you take on an open-end lease, you are placing yourself in a position of risk. You take on all of the risk of the depreciation of the car and become responsible for paying for it in the future. With a closed-end lease, the automotive dealer is in a position of risk instead because it are responsible for the depreciation.
Business Purposes
Most open-end leases are used in commercial settings. If a business needs to lease a vehicle, it may be offered a open-end lease instead of a closed-end lease. This happens because the business may need to drive much more than the mileage limit that is allowed with a traditional closed-end lease. This is not as big of a problem for businesses because they can deduct the amount that they have to pay for depreciation on their taxes.
0 comments:
Post a Comment