Open-End vs. Closed-End Lease: Which Is Better for You?
Leasing your new car is a great choice, but not all leases are identical. It’s important to pick the terms that suit you, and that includes whether it’s an open-end lease or a closed-end lease with stricter limitations.
What’s the difference between an open-end vs. closed-end lease? It comes down to depreciation.
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Open-end vs. closed-end lease: Which is better?
The more common type of agreement is the closed-end lease, according to Credit Finance Plus. This is the typical lease agreement you’d sign for a private lease of a vehicle from a dealership for borrowing it a couple of years.
The terms of a closed-end lease specify a set length of the contract, a fixed cost owed each month, and what operational constraints are on the lessee (such as monthly mileage and servicing). In exchange, the dealership leasing the vehicle is responsible for covering the cost of its depreciation over the length of the lease.
The estimated depreciation in the car’s value is factored into what the lessee will be charged each month in their bill, relying on the promise that the car won’t experience excessive wear and tear. As long as you follow the guidelines, depreciation won’t matter to you.
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Fewer people agree to an open-end lease, but it is the better option in some cases. In this type of lease arrangement, the lessee agrees to take responsibility for the depreciation of the vehicle. Instead of abiding by operational limitations during the lease, the lessee can have more freedom in the mileage and treatment of the borrowed vehicle.
In exchange, the lessee agrees to pay the dealership whatever the actual depreciation amount is on the vehicle when they’re done with it.
Generally, a closed-end lease is your best option if you need a personal vehicle for a couple years. But if you need one for a short period and expect to put a lot of miles on it, you might want to sign an open-end lease.
Aaron is unashamed to be a native Clevelander and the proud driver of a Hyundai Veloster Turbo (which recently replaced his 1995 Saturn SC-2). He gleefully utilizes his background in theater, literature, and communication to dramatically recite his own articles to nearby youth. Mr. Widmar happily resides in Dayton, Ohio with his magnificent wife, Vicki, but is often on the road with her exploring new destinations. Aaron has high aspirations for his writing career but often gets distracted pondering the profound nature of the human condition and forgets what he was writing… See more articles by Aaron.