Moneyzine
Contents
/Personal Finance/Closed-End Lease

Closed-End Lease

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 25th, 2023
Advertiser Disclosure

Definition

A closed end lease is one of the two main types of car leases available today; the other being an open end lease. With this type of lease, the lessor and lessee agree on the residual value of the automobile. A closed end lease, also known as a "walk away" lease, allows the lessee to walk away at the end of the contract; without the risk of making any additional commitment to purchase.

Explanation

Closed end leases are based on the fact that leasing companies are able to predict, with a high degree of certainty, what a car is worth at the end of an agreement (residual value). They can also control the amount of expected wear and tear on an automobile through an excess mileage charge. This "per mile" fee counteracts the lower residual value of a higher mileage vehicle.

When a leasing company calculates the monthly lease payment, they estimate the value of the car at the end of the contract's term. If the car is worth less than this residual value, then the leasing company takes the financial loss with a closed end lease. If the market value of a car is higher than the residual value, the leaseholder has the option of buying the car. Under these circumstances, the buyer of the car should then be able to sell the car at a profit.

Federal regulations require the lease type be clearly marked on all contracts.

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    December 6th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    November 18th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine Editor
The Moneyzine editorial team consists of writers and content specialists with diverse backgrounds.
Moneyzine 2024. All Rights Reserved.