Difference Between Open-Ended and Closed-Ended Car Leasing

What is Open-Ended?

This is a contract method where the residual value is specified in the contract and the difference between the appraised value and the residual value is settled at the end of the contract. Therefore, depending on the residual value you set, you may be able to reduce the monthly fee, but you should be aware of the possibility of additional charges. Note that in the open-ended method, you can buy the car by paying the difference from the appraised value.

 

What is Close-Ended?

This is a contract method in which monthly charges are calculated without disclosing the residual value at the time of contract and the difference is not settled. Depending on the service, monthly payments may be higher than with the open-ended method. In addition, since the principle of car leasing is to restore the car to its original condition at the end of the contract, penalties and repair costs may be charged if the car is used in extremely poor condition. The basic options at the end of the contract are to return the car or extend the lease term.

 

At expiration of lease contract

	Open-Ended	Closed-Ended
Options	1) Buy the car with the residual value 2) Extension (re-leasing) 3) Return (settlement of the residual value with the leasing company): The car is appraised and the difference between the market price at that time and the set residual value is settled.	1) No car purchases 2) Extension (re-leasing) 3) Return (to the leasing company): No settlement of the residual value is made. However, if the car has major defects, you are required to restore the car to its original condition at your expense.
Notes on residual value settlement	A higher residual value will result in lower lease payments, but if the appraisal at the end of the contract is lower than the residual value, you will be responsible for the cost of the lease.	Since the responsibility for residual value settlement rests with the leasing company, you do not need to worry about fluctuations in the value of the car, as long as you use it in a sensible manner.

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