Car Leasing Glossary - Closed & Open End Leases

Closed and Open End Leases (car leasing term)

Most leases today are closed-end leases also better known as "walk away" lease, meaning that the residual value is fixed and stated in the lease contract (the stated residual value). The lessee's financial obligations are unaffected by what the vehicle is actually worth when the lease ends. In other words, the lessee assumes no risk for the depreciation (define: depreciation)of the vehicle.

With an open-end lease (define: open end lease), there is still a residual value set at the beginning of the lease. However, if the car is worth less than the residual value at the lease's end, the lessee must pay the difference. In other words, the lessee is assuming the risk for depreciation with an open-end lease.

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