Auto leases are a way of using a vehicle and claiming ownership while payments are made according to schedule to obtain full ownership of the vehicle. Leasing requires contracts regarding specifications of the lease agreement and determination of payment schedules. Different types of auto leases are available and should be clearly stated in all lease contracts and papers.
An important factor you need to consider when leasing a vehicle is the guidelines of the lease contract or lease companies with regard to residual values. A residual value is taken at the time the lease contract is signed; it is an estimate of what the price of the vehicle will be at the end of the contract. Residual values are very important to consider in some types of auto leases.
Close-end leases are often called walk-away leases because the lease contract allows you to return the automobile at the end of the lease term without any further obligations to make payment on the vehicle, except for charges regarding mileage or damage accrued. This type of lease allows the lease signer to rent the vehicle for a specified amount of time and either return it at the end of the contracted amount of time or purchase the vehicle by eventually paying the full amount of the auto. With this type of lease, the residual value of the car can hurt you, especially if the auto has not been taken care of and the value is lower than expected. If the actual residual value is less than the estimated value, the leasing party will be responsible for paying off the difference.
An open-end lease is used in commercial or business leasing, while closed-end leases are most common for private auto owners. Residuals are set lower with open-end leases, but the business owner or leasing party is still responsible for the difference in the estimated value and the actual value of the automobile. However, if the actual value is greater than the residual value, a refund may be available.
Other types of auto leases include single-payment leases and subsidized-by-the-manufacturer leases. With single-payment leases, a lump sum is paid initially to offset interest; this may need to be calculated by a lawyer to prevent dishonesty on the behalf of the dealer of the leasing party. Subsidized-by-the-manufacturer leases are designed to move vehicles off the lot by offering low interest rates or setting higher residual values.
Understand the difference between each type of auto lease before you sign a lease contract. Seek the advice of a lawyer or banker is necessary. Make sure that the lease specifications you agree to are ideal for your financial situation and needs.
