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

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!
March 26th, 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.
March 27th, 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
What’s Your One Page Financial Plan? Mapping out Your Future
“What’s your one page financial plan?” — This is the absolute best question that I’ve heard asked in a long time. Instead of talking about your hot stock pick or your fancy investment that shields you from paying taxes, I think it’s time for all of us to step back and ask ourselves the most intelligent question of all, “Why the heck do I care about money anyway??”
March 14th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.