Two Types of Car Leasing
Before you sign the leasing contract, you should know that there are two different types of leases. They are very different from each other. Generally dealers do not know information on this, so its best to read the contract for yourself.
The closed-end lease is the most common lease used today. Closed-end simply means that you can return your car at the end of your lease with no other obligations, except for any extra fees for over mileage or damages.
This means that with a closed-end lease you have to drive no more than the expect mileages (usually between 10 to 15,000 miles per year), and that the car has to be kept in good condition.
With closed-end leases, the Residual is predictable. This is because the contract obligates you to keep the car in a certain condition. At the end of your lease, the leasing company estimates the cars lease-end Residual using the miles on the car. If the car is in the conditions it was agreed to be in, and worth less then the expected Residual, the good news is that the leasing company loses money, not you. If the car is worth more than the expected Residual, and you can buy it, you might want to buy it, and make profit from selling it.
Open-end lease is more expensive, and could be more costly for the consumer, than it would for a leasing company. This type of lease is mostly for business leasing. With this lease, you are responsible for paying the difference between the expected Residual, and the actual Residual at the end of the lease. This type of lease is expected to go over the usual 12,000 miles per year, because of that the Residual is set much lower, which decreases the risk of paying more at the lease-end, but creates higher monthly payments.
If you are a consumer make your that your lease is a Closed-end lease. Read your contract closely and makes sure it says in your contract that it is for a Closed-end lease.