Question

You are working as a finance manager in a Finance company. Your friend is interested in buying a car for his business and he wants to know more about leases. Explain in detail the two types of leases.

Answer 1

The car leases come in two types: Closed-end and Open-end. Closed-end leases, also known as “walk-away” leases allows you to return the car at the end of the lease and holds no extra responsibilities other than possible payment of mileage charges or excessive damage. This is recommended most for consumers. On contrary the open-end leases are mainly used for commercial purpose leasing and usually not recommended for consumers. In this lease type, it is the lessee, not the leasing company, who undertakes the financial responsibility for the risk at the end of the lease. It is also not much a concern for a business because the cost can be expensed. The annual mileage on a lease for business is often much higher and less predictable compared to the average 12,000 miles-per-year for a non-business lease. Moreover the open-end leases often have much better allowances on mileage compared to the close-end leases, and are likely to be more generous when it comes to the end-of-lease assessments of wear and tear as well. Since you are leasing a car for the business, thus an open-end lease could be a better attractive option depending on your requirements