subject: Types Of Auto Leasing [print this page] When you decide to lease a car, you will be contractually obligated by the leasing company and/or the dealer. For this reason each contract must clearly state by Federal law what kind of car lease for which you are signing. Always read the paperwork yourself so that you understand your obligations as well as those of the company.
There are three major types and you should understand the basics of each. The three are: closed-ended, open-ended, and business car leasing. Closed-ended (sometimes known as "walk-aways") are very common for consumers. What happens at the end of your deal is that you simply return your vehicle and have no further obligations to uphold sans payment or damage and mileage charges. In these cases you are expected to have only driven the vehicle an average amount annually (roughly 12,000 miles) and that you cared for it in the process. This is because your use and the residual value upon return are predictable. If the car is worth less than that, then that means the company takes the financial hit. If it's worth more than residual estimates, than you may want to purchase it and continue to drive it. Or you could purchase it and then sell it. This is your choice. Open-ended deals tend to be more commercial rather than consumer-based. When you get one of these contracts you are the one who is financially responsible regardless, not the financing company. The upside, however, is that you get a much greater average mileage limit. This also means that you must pay any difference between residual and market value when you decide to return it. Depending on your company's use this could mean a large sum. The costs are reliant on the market value versus the wear of the vehicle and amount of miles it was driven. The good thing for having this car leasing deal is that the residual tends to be lower and thus lowers the risk. The only drawback is that this means you will most likely have to make higher monthly payments than with a consumer contract.
And business deals are best handled with your professional tax accountant or financial advisor. Business vehicle leasing is tax efficient-- as tax-allowable expenses the payments will actually lower your tax bill. In terms of contract hire, it is similar to long-term car rental. Your business will pay the finance company a fixed amount and the service and maintenance may be included. It's budget-friendly. A downside is that you cannot have the option of buying the car after the deal ends.
by: Mark Etinger
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