Car Leasing 201 - Types of Auto Leases: Open End Car Leases

Open-end Leases

The second vehicle lease type is open-end leases. Open-end leases (define: open end lease) are commonly used for commercial business vehicle leasing. The major difference with open-end vehicle leasing is that the business or company becomes the lessee (define: lessee) and not the leasing company. This means the company assumes all financial risk on the vehicle. Assuming all financial risk by the company is commonly done since the cost of the vehicle can be written-off or expensed. If your business is seeking to get into a open-end lease agreement or another type of lease agreement for your business, ensure to discuss with a financial advisor such as a tax accountant to determine which lease type provides the best tax benefits.

The company or individual who assumes an open-end lease is accountable for paying the difference of the estimated residual value of the vehicle and the going market value at the termination of the lease agreement. The residual value for an open-end lease is commonly set significantly lower than for a non-business closed-end lease. This will reduce the lease-end risk, but increases the monthly payment amount for the company or consumer.

As a consumer, ensure you check your lease agreement that you’re entering into a closed-end car lease agreement only. Anyone seeking to get into a business vehicle leasing, talk with the dealership manager to help determine which type of lease best suites your business.

Part II: Who Should Lease a Car