What is a Closed-End Lease?
For many of our customers who are interested in leasing commercial vehicles, open-end leases are the norm. But depending on your situation, a closed-end lease might be better for you. What exactly is a closed-end lease? Closed-end leases more easily allow you to budget your fixed lease payments without any residual risk. This means that when you decide to start a closed-end lease at Quest, our job is to assume the risk for the residual value at the end of the lease, hassle-free, so you don’t have to! In this article, we'll discuss the difference between closed-end and open-end leases and the potential benefits of a closed-end lease for you.
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Open-End Vs. Closed-End
Open-End Leasing
Open-end leases allow you to lease your vehicle at a guaranteed value as outlined by the contract. At the end of the agreement, you'll have the option of purchasing, selling, or trading in the vehicle, but only if it falls within the Guaranteed Residual Value (GRV). If the sale amount is more than the amount calculated in the agreement, your company can keep the profits. However, if the vehicle is sold for less, you’ll be required to reimburse the lessor for the difference.
With an open-end lease, you will typically agree to a minimum term, such as 12 months. Once concluded, you can then lease the vehicle on a month-to-month basis if you so choose. Businesses most often use these kinds of leases for their commercial fleets. A benefit of open-end leases is that because you're bearing the financial risk of the lease, you’ll often pay a cheaper rate and won’t have to worry about a mileage restriction.
Closed-End Leasing
Comparatively, closed-end leases will put the risk and cost of depreciation onto the lessor rather than you, the lessee. Instead of having to negotiate the GRV we mentioned earlier, you get the option of either returning the car at the end of the lease or repurchasing it. You'll just have to pay any damages that occurred during your lease.
Closed-end leases typically come with mileage restrictions that could range from 16,000 to 24,000 km per year. If the limit outlined in the contract is exceeded, a fee per specified kilometre will need to be paid.
Benefits of a Closed-End Lease
- No residual risk. You're only responsible for monthly payments, excess mileage, and damages.
- No obligation to purchase the vehicle at the end of the agreement.
- Typically comes with a fixed rate and term of 12 to 48 months.
- You will know the vehicle's residual value from the start.
- If the vehicle's market value is higher than the residual value, at the end of the contract, you have the ability to purchase and resell the vehicle for a profit.
Closed-End and Open-End Leasing is Available at Quest Auto
While most of our commercial fleet accounts prefer the flexibility of open-end leases without the mileage restrictions, here at Quest Auto, we’re happy to offer both lease options. When it comes down to it, closed-end leases have the benefit of predictable monthly payments with minimal residual risk to you. We also offer a quick and easy trade-in appraisal process if you’re looking to upgrade your current fleet! Still not sure which leasing option is right for you? Feel free to contact our team to discuss your questions or concerns about leasing your next commercial vehicle!
