Open End Lease vs Close End Lease

Open end lease is a lease requiring an additional payment at the lease end, the amount of which is dependant upon on the fair market value of the asset at that time. An open end lease is typically used for commercial purposes. Commercial leases are much more unpredictable than non-business lease, so lenders use open end leases to take the majority of the risk away from themselves and place it on the lessee.

With a closed end lease, all the lessee has to do at the end of the lease is return the equipment. They have no other obligations, except if the equipment is damaged in some way. A closed end lease requires the lessee to pay the difference between the estimated market value and the actual market value at the end of the lease.

The difference in value can be a significant amount of money if that type of equipment has dropped in market value. Also,with any type of leased vehicle, the actual market value might be lower than the estimated market value if more miles were driven than expected.


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