Get an Open End Car Lease
Drivers who want to lease their transportation have the option of an open and closed ended car leases. Each type of lease has its own specific financial responsibilities and risks. Although many customers opt for a closed-end lease because of its fixed costs, some people may find the options available through open ended leases make more sense for them. The defining characteristic of an open ended lease is that you are expected to pay the remainder of the vehicle’s value at the end of the lease, thus purchasing it upon the completion of the contract.
Making Sure an Open Ended Lease is Right for You
- Differentiate between open and closed ended leases. Open and closed ended leases operate in very much the same manner throughout the life of the contract. The difference between the two lies in what happens upon the end of the agreed upon timeframe.
Closed end leases are more common for consumers, as you can simply return the car at the completion of the contract with no additional financial responsibilities unless the vehicle requires repairs.
- You are responsible for this balloon payment regardless of the actual value of the car at the end of the contract.
- Decide what level of risk you are willing to accept. When signing an open ended lease, you are agreeing to pay a balloon payment of the remainder of the anticipated value of the car at the end of the lease, which means you run the risk of losing value. By agreeing to an open ended lease, you are promising to pay the sum of money at the end of the contract, regardless of the actual value of the car by then.
- If the value of the car is higher than predicted at the end of your lease agreement, you may gain value by buying out the lease.
- If the car is worth less than anticipated, you are still responsible to pay the balloon payment dictated at the signing of the lease.
- If you are concerned that you may end up having to pay more than the car is worth in the end, an open ended lease may not be right for you.
- Take what you'll use the car for into account. There are different leasing options available to you based on what you intend to use the car for and how long you hope to keep it. Open ended leasing is often used for businesses as opposed to consumers because of the balloon payment required at the end, but may offer advantages to you based on your situation.
- Think about how much mileage you intend to put on your car. Closed ended leases will give you mileage limits, with financial penalties for exceeding them. Open ended leases have no mileage limits.
- Consider whether or not you hope to keep the car you lease. If you do not, a closed ended lease would make more sense for you.
Choosing a Vehicle
- Start looking for the right vehicle. You cannot usually lease used cars, so you will need to choose a new vehicle that you are interested in leasing and ultimately owning. Consider what you will be using your vehicle for and use that to help narrow down your choices.
- If you are going to be transporting people or goods, consider the storage available in cars, SUVs or trucks. Depending on what you will be carrying, you may need to choose one over the others.
- If you are going to be driving a significant number of miles, you may want to consider gas mileage when choosing a new vehicle. Many cars, trucks and SUVs come with different engine options that offer different fuel economy so make sure to research the vehicle you choose.
- Consider all of your options when determining what the right car is for you.
- Determine your budget. Once you have identified what you intend to you use your new vehicle for and how much you intend to drive it, you should determine a range of monthly prices that you are able to afford. You will likely end up paying more than the total cost of the car by leasing it, so also consider how much more you are willing to pay above retail price. Try creating a budget to determine how large a monthly payment you can afford.
- Add up your expenses and compare them to your monthly income to establish a basic budget.
- Once you know how much you have in your budget to work with, use that to determine what you could afford as a monthly payment.
- Narrow down your choices to a few vehicles. Use the decisions you’ve made in the previous steps to narrow down your choices to two or three cars. This will allow you compare their options, prices and benefits to determine the best choice for you. Once you have narrowed down your choices, do some research online about each make and model to see if there are issues with it.
- Websites like KBB.com can give you reviews on the car and Recalls.gov can let you know if there have been any recalls on that specific make and model.
- Take notes if you’d like. Bring any notes you take with you to the dealership to make sure you have a thorough understanding of the cars you look at.
Signing an Open Ended Lease
- Meet with a salesperson. Visit dealerships that offer leases on the cars that you are interested in and take each car for a test drive. Pay close attention to your comfort in the car as well as your level of comfort driving and handling the vehicle. It’s important that you choose a car that you feel comfortable in and that you know you can manage.
- Mention anything that you aren’t sure of during your test drive to the salesperson. There may be an issue with that specific car that they can fix, or you may want to test drive a different car.
- Remember not to lease the first car you test drive, although you may be tempted to do so. Instead compare more than one vehicle to get a solid sense of what you want.
- Talk pricing before you bring up the lease. Do not mention that you intend to lease the car until after you have determined the total price with the salesperson. Car dealerships often focus on monthly cost over total price, because they know you will be more apt to accept a lower monthly payment, even if the total price of the vehicle goes up.
- By negotiating total price before you negotiate the terms of the lease, you know what the maximum cost of your lease will be and possibly limit the size of the final balloon payment you will be expected to pay.
- Your monthly lease payments will be based on your overall agreed upon price, so negotiating a total price first will ensure you know what your monthly costs will be.
- Repeat the process for each of the vehicles you are considering leasing. Visit more than one dealership and test drive each of the cars you may want to lease. Negotiate a total price and determine what the monthly expenses may be for each.
- Keep any documentation you receive from each dealership so you can accurately compare your options at home.
- Don’t allow salespeople to pressure you to make a decision right away. Signing a lease is a large financial commitment, and there’s nothing wrong with taking your time.
- Compare your leasing options. Once you have determined the total price, ask the salesperson about leasing options. They may offer different programs with different options available to you. Be sure to specify that you intend to sign an open ended lease agreement, as the paperwork will need to reflect that instead of a more traditional consumer lease.
- Some common leasing options may be the option to pay additional sums toward the final payment each month, the ability to transfer the lease to others, or even to extend the time frame of the lease if you need to.
- Some companies offer leasing options that include covering more of the maintenance costs of the vehicle. These options may be valuable to you as maintaining the car properly can help keep it’s overall value high.
- There may be lease options that include different durations. Remember that you will be responsible for the remainder of the value of the car upon the completion of the lease, so shorter leases will result in a higher final payment.
- Use a large down payment if possible. In order to minimize your monthly expense as well as the final balloon payment you’ll be responsible for upon the completion of the lease, put down as much as you can up front. The larger your down payment, the less you will have to pay down the road.
- The more you pay toward the overall cost of the vehicle, the less you will be responsible for later on.
- Large down payments don’t make as much sense on closed ended leases, as you will be returning the car regardless upon the end of the lease.
Minimizing the Financial Risk of Your Lease
- Limit your mileage. The fastest and easiest way to reduce the value of your vehicle, believe it or not, is to drive it. The higher the mileage on your vehicle, the less it is worth so limit any unnecessary driving to ensure you maintain the highest possible value for your car.
- Only use your leased vehicle to drive to places you absolutely have to, in order to avoid putting unnecessary miles on it.
- Use GPS to find direct routes to places that you go in order to avoid adding additional miles to your trips.
- Perform necessary maintenance and upkeep. Your vehicle will require regular maintenance to keep it running well. Preventative maintenance can keep things from breaking that would result in costly repairs and a well maintained vehicle will retain more value than a poorly maintained one.
- Get oil changes at the frequency recommended in your vehicle’s owner’s manual. A common rule of thumb is to have your oil changed every 3,000 miles.
- Check your user’s manual for scheduled maintenance requirements like changing your air filter, transmission fluid or oil, and fuel filters.
- Get GAP insurance. You will be required to maintain full coverage car insurance on your vehicle throughout the life of your lease, but you may also want to invest in GAP (Guaranteed Auto Protection) coverage. In the event your car depreciates faster than you’d hoped and you get into an accident, your insurance will only cover the value of the car, not the remainder of what you owe. Gap insurance covers that remainder.
- If your open ended leased car is totaled before you've completed the lease and made the final balloon payment, you are still financially responsible for the full cost of the car. GAP coverage will protect you from having to pay thousands of dollars out of pocket toward the car after an accident if it has depreciated.
- You may be able to add gap insurance to your lease at the dealership when you sign the contract.
- Most car insurance providers offer gap insurance at an additional cost.
- [v161558_b01]. 15 September 2020.
- [v161558_b01]. 15 September 2020.