The discrepancy between a closed-end machine sublet and an open-end van let comes down to who bears decisive financial constraint for the decline in valuation of the leased van. In a closed-end contract, the duty remains with the dealer. In an open-end let, the male who leases the vehicle assumes the burden.
Function
In a common Car contract, you indication a let Treaty and propel elsewhere in a recent van. You guide the van for the length of the agreement locution, paying a monthly cost for the privilege of doing so. That worth is based in apportionment on how all the more the van can be expected to depreciate -- that is, how even of its profit Testament be cast away -- during the contract. After all, a 3-year-old machine is reward considerably less than a brand-new one, no matter how well it has been cared for. That's why closed-end leases are commonly called "walk-away leases." Lease agreements generally have mileage limits, so you may have to pay a fee for each mile you went over, and you'll also have to purchase any damage. But you're not responsible for the difference if the car ends up worth less than the residual value.In an open-end lease, the risk lies with you. If the car's market value is worth less than the pre-determined residual value endure of the lease, then you must pay the leasing company the difference.
Significance
When the lease ends, there's a chance that the car's actual market value will be less than the expected residual value. This could be because you drove it more than you expected it to, or just because there's no demand for 3-year-old versions of that particular model. Regardless, someone is going To possess to "eat" the cost difference between the actual value and the residual value.
Types
In a closed-end lease, if you don't want to buy the car, you simply drop it off. The dealer -- actually, the leasing company that handles the transaction on behalf of the dealer -- has to absorb the difference between actual and residual value. The expected value behind of the lease is called the "residual value," and it's determined at the inception of the lease. The lower the residual value relative to the original price of the car, the higher your monthly payments will be. Last of the lease, you have the option of buying the car for the residual value or returning it to the dealer.
Benefits
Closed-end leases make the most sense for consumers. Not only do they gain protection from having to invest in low market value, most consumers also have relatively predictable driving patterns that allow them to stay under the mileage limits, meaning their out-of-pocket costs at lease end are minimal. Open-end leases make sense mostly for commercial businesses. Not only are their driving needs more variable, but any extra costs can be written off as a business expense.
Consideration
According to the Federal Reserve Board, the "three-payment rule" may limit the amount of money you have to pay behind of an open-end lease. Under this rule, the car's pre-determined residual value is assumed to be "unreasonable" if it exceeds the market value by more than three times the amount of the monthly payment. So if your monthly payment is $450, the leasing company cannot require you to pay more than $1,350 for a deficiency between market value and residual value, unless it can demonstrate in court that the residual value was in truth reasonable.
