Open-End Lease
An open-end lease is a type of vehicle lease, often used in commercial or business contexts, where the lessee takes on more financial risk compared to a closed-end lease. At the end of the lease term, if the vehicle’s market value is lower than the predetermined residual value, the lessee must pay the difference.
Conversely, if the market value is higher, the lessee may benefit by paying less or even receiving a credit. Open-end leases typically have flexible terms, longer durations, and higher mileage allowances, making them attractive to businesses with unpredictable driving needs.
However, because the lessee bears the residual value risk, these leases can expose them to significant unexpected costs if the vehicle depreciates faster than expected. Open-end leases are common in fleet management, trucking, and other commercial operations.
They provide flexibility and potential cost savings but require careful financial planning and understanding of residual value risk.
Example
A logistics company enters into a three-year open-end lease for a fleet of vans. At lease-end, the vans are worth $5,000 less than the agreed residual value. The company is required to pay the $5,000 difference to the leasing company.