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true, most leases are closed end leases, which means you turn the vehicle in at the end of the lease.
You turn the vehicle at the end of every lease. That's the point. I'm not exactly sure what your point is here - all leases have a payoff, it just varies as to what that payoff is as to how the lease is structured. You are never "locked in" to the full term of a lease from a contractual standpoint - you can alway trade out of a lease, it's just usually not a viable option because the payoff is too high.
If by "open end lease" you mean a lease in which you are obligated (not simply permitted) to make a balloon payment at the end, then I don't even consider those types of leases because they are stupid and if you entered into one, you're stupid as well. I'm not going to write responses on a message board trying to capture every single possible outcome.
When most people say "lease" they mean a financing arrangement in which they return the vehicle at the end of the term, or have the option of buying the car at the end.
You turn the vehicle at the end of every lease. That's the point. I'm not exactly sure what your point is here - all leases have a payoff, it just varies as to what that payoff is as to how the lease is structured. You are never "locked in" to the full term of a lease from a contractual standpoint - you can alway trade out of a lease, it's just usually not a viable option because the payoff is too high.
If by "open end lease" you mean a lease in which you are obligated (not simply permitted) to make a balloon payment at the end, then I don't even consider those types of leases because they are stupid and if you entered into one, you're stupid as well. I'm not going to write responses on a message board trying to capture every single possible outcome.
When most people say "lease" they mean a financing arrangement in which they return the vehicle at the end of the term, or have the option of buying the car at the end.
an open ended lease merely gives you the option of buying the vehicle once the lease is up, there is NO obligation to buy the car if you do not wish to. a closed end lease means that you turn in the vehicle with NO option to buy.
an open ended lease merely gives you the option of buying the vehicle once the lease is up, there is NO obligation to buy the car if you do not wish to. a closed end lease means that you turn in the vehicle with NO option to buy.
These terms you're using, I do not think they mean what you think they mean.
Perhaps you should do some additional research instead of trying to be insulting. A closed-end lease simply means that there is no obligation to buy the car at the end of the lease or to make up the difference in value between the actual value and the residual value. It does not mean there is no option to buy the car at the residual value. In fact, almost every consumer lease has a purchase option.
I've always heard it referred to as a walk-away lease. You are using lease terminology but using it incorrectly.
Using your terms, the correct definitions are:
Closed-end lease: pretty much the standard consumer lease. Walk away at the end of the term without being obligated for anything other than wear and tear. I'm sure it's possible that some of these agreements don't have purchase options for the residual value, but I would bet the percentage is extremely low, so low as to be virtually non-existent. For 99.9% of people that say they are in a lease and are retail consumers, they are in a closed-end lease with an option to buy the car at the residual amount at the end of the term.
Open-ended lease: used almost exclusively for fleet and commercial purposes. You aren't obligated to buy the car at the end of the term, but you are obligated to make up any shortfall between the contract residual and actual market value. Meaning if the residual is $20,000 and the market value of the car is $15,000, then you have to write a $5,000 check.
Under either type of lease, there is still a payoff amount and the lessee can still trade in the car prior to lease end if so desired. The main difference is risk allocation at the end of the term.
Now that we've established that you are wrong at best, can we move on to the true point of this thread, which is to get to arguing about which is better, leasing or buying, as quickly as possible?
Perhaps you should do some additional research instead of trying to be insulting. A closed-end lease simply means that there is no obligation to buy the car at the end of the lease or to make up the difference in value between the actual value and the residual value. It does not mean there is no option to buy the car at the residual value. In fact, almost every consumer lease has a purchase option.
I've always heard it referred to as a walk-away lease. You are using lease terminology but using it incorrectly.
Using your terms, the correct definitions are:
Closed-end lease: pretty much the standard consumer lease. Walk away at the end of the term without being obligated for anything other than wear and tear. I'm sure it's possible that some of these agreements don't have purchase options for the residual value, but I would bet the percentage is extremely low, so low as to be virtually non-existent. For 99.9% of people that say they are in a lease and are retail consumers, they are in a closed-end lease with an option to buy the car at the residual amount at the end of the term.
Open-ended lease: used almost exclusively for fleet and commercial purposes. You aren't obligated to buy the car at the end of the term, but you are obligated to make up any shortfall between the contract residual and actual market value. Meaning if the residual is $20,000 and the market value of the car is $15,000, then you have to write a $5,000 check.
Under either type of lease, there is still a payoff amount and the lessee can still trade in the car prior to lease end if so desired. The main difference is risk allocation at the end of the term.
Now that we've established that you are wrong at best, can we move on to the true point of this thread, which is to get to arguing about which is better, leasing or buying, as quickly as possible?
Then how does an open-ended lease differ from a loan with a balloon payment, if you are required to repay a set sum of money regardless of the car's market value?
Then how does an open-ended lease differ from a loan with a balloon payment, if you are required to repay a set sum of money regardless of the car's market value?
You aren't required to pay a set sum of money. You are required to come up with the shortfall on the cars market value if it is worth less than the residual. The idea is that the vehicle is close to the actual residual value.
Then how does an open-ended lease differ from a loan with a balloon payment, if you are required to repay a set sum of money regardless of the car's market value?
Two ways:
1) You can generally walk away from a balloon payment. My current lease is set up with an optional balloon payment at the end, but I'm not obligated to pay it. I can simply turn in the keys and walk away. The reason it's done that way is Texas state laws regarding tax credits for trading in cars and how that affects leasing.
2) On an open-ended lease, it's not a fixed payment amount. It could be $500, it could be $4700, it could be $10,000. The lessee is required to make up the difference between the residual amount specified in the lease agreement and the actual market value of the vehicle at the end of the term. A balloon payment is a fixed amount, not a fluid figure.
You aren't required to pay a set sum of money. You are required to come up with the shortfall on the cars market value if it is worth less than the residual. The idea is that the vehicle is close to the actual residual value.
Wouldn't that be the same as a balloon payment? You'd be allowed to do this in either case, you just bring cash to the table to pay off the negative equity and the buyer pays off the rest and gets the title signed over. I suppose the difference is that for the loan you actually have to find a buyer yourself, right?
Wouldn't that be the same as a balloon payment? You'd be allowed to do this in either case, you just bring cash to the table to pay off the negative equity and the buyer pays off the rest and gets the title signed over. I suppose the difference is that for the loan you actually have to find a buyer yourself, right?
No. A balloon payment is a fixed payment amount. For instance, my current lease is 35 payments of $xxx per month, and the 36th payment is the balloon payment, so it's like a $33,000 payment or something like that. In the lease agreement, I have the option of paying that payment (or financing it) or turning in the car. But that balloon payment amount won't change - it's a fixed number that the market price of the car at that time has no bearing on. If the car is worth $38,000 (ha!), then I can buy it for $33,000. If the car is worth $27,000, then I have no obligation to make the payment or make up the shortfall.
For the open-ended lease, you still turn the car at the end, the lessee is just on the hook for any difference in residual versus actual value. So in the above case, if the residual is $33,000 and the ACV is $27,000, the lessee still has to turn in the car, they just have to do it with a $6,000 check.
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