Open end vs closed end lease
by jimlive Posted on Thursday, October 19, 2017
Managing a commercial vehicle fleet is often better left to a fleet management company. That’s because vehicle fleet management requires constant vigilance to ensure you’re maximizing your value, recycling and maintaining your fleet, coordinating buy outs or arranging new acquisitions and financing. Knowing whether to choose an open ended vehicle lease or a closed end lease takes someone who understands the nuances of vehicle fleet management and the benefits of both types of leases.
There are a number of advantages to the open-ended vehicle lease, particularly for commercial vehicles. For starters, there are no restrictions on the kilometres you rack up on the vehicle with this type of lease. That means your company is not going to be penalized with overage charges for having put a hundred thousand kilometers on a vehicle you’ve only had for a year. Open-ended lease offer flexibility. At the end of the lease there are several options available to you, including buyout the truck, continue with the lease or return and replace the vehicle. With the open-ended lease, you are guaranteeing the residual or “buy out” value of the vehicle at the end of the lease term, which is structed according to your anticipated usage. For example, if your open-end lease contract lists a residual value of $20,000, you are agreeing that the car will be worth $20,000 at the end of the lease. If you choose to return the vehicle and it is determined to be worth only $15,000, you would have to pay the $5,000 difference between the contracted value and the actual value, plus associated taxes. If the vehicle is deemed to be worth more than $20,000, the leasing company would owe you the balance – money you could keep or put toward the cost reduction on a new lease. The other advantage to securing an open ended commercial lease is that such an option is usually not offered by automotive dealers.
There are also some advantages to taking out a closed end lease especially for consumers with average vehicle use. Closed end leases have kilometer restrictions with an optional to return the vehicle when the lease expires. This type of lease works well for individuals who do not want to assume the responsibility for the depreciation throughout the term of the lease. If you had a 20,000 km a year restriction over four years and returned the vehicle with 85,000 kilometres, you would pay a penalty on the additional 5,000 kilometres. You are also responsible for damage to the vehicle above and beyond normal wear and tear.
Which lease is better for your business? Put your faith in your fleet management company to know what works best for you. Learn more. Visit Jim Peplinski Leasing at http://www.jimpeplinski.ca/.