Types of Auto Leases

Closed-End Leases

Most consumer leases are closed-end leases. With this type of lease, you make a predetermined number of payments for a specified period of time. At the end of the term, you return the vehicle. At that time, you have no contingent responsibility for the vehicle's value. In other words, any loss of value through depreciation of the vehicle is the responsibility of the leasing company. Of course, this excludes physical damage, excess wear and tear, or high mileage.

Open-End Leases

Most business leases are structured as open-end leases. With this type of lease, you "risk" that at the end of the lease the vehicle’s market value will be comparable to the amount specified in the lease contract. This is called an “estimated residual value." If the vehicle is resold for an amount equal to the estimated residual value, you owe nothing. If it is worth more, you receive the difference. If it is worth less, you may owe all or a portion of the difference—often called an "end-of-lease payment."

The Federal Consumer Leasing Act provides a measure of protection for lessees in open-end leases by limiting the end-of-term liability to no more than the total of three monthly payments.