Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Closed-End Lease

What it is:

Also called a walk-away lease, a closed-end lease is usually a kind of car lease that allows the lessee to return the car at the end of a lease period.

How it works (Example):

Let's assume John Doe leases a 2013 Ford Mustang. The lease term is two years. During those two years, John must keep the car in good condition and not exceed, say, 25,000 miles. For this, John pays $450 a month.

At the end of the two years, John simply drives to the dealership, hands over the keys, and walks away (or, more likely, leases another car).

Why it Matters:

Closed-end leases are advantageous to lessees because they know how much it's going to cost to lease and take care of the car. The lessee doesn't have to worry about how much the car's value will be when it comes time to sell the used car -- that's a risk the lessor has to bear (and the lessor will factor that risk into the lease payments it charges the lessee in the first place).