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Closed End Lease Agreement

In return for taking on the financial risk of the lease agreement, the lessee usually pays a more advantageous price and does not have to worry about a mileage limitation. As a general rule, a closed lease has a fixed rate and a duration that can last from 12 months to 48 months. The lessee may wish to terminate the contract prematurely, a step that often entails additional costs for early exit. For vehicles purchased by such an agreement, there are often annual mileage limits, usually between 12,000 miles and 15,000 miles. If the use of the vehicle exceeds these limits, the renter is required to pay an additional fee. This fee may be based on a penalty set per cent per mile above the limit. The lease-purchase agreements concluded are beneficial for the lessees because they know how much it will cost to rent the car and take care of it. The lessee does not have to worry about the value of the car when it comes to selling the used car – this is a risk that the lessor must bear (and the lessor will take this risk into account in the rents he uses to the lessee). In most cases, when a lease is concluded, the owner does not already own the property for rent. On the contrary, the owner undertakes to acquire the property for a specified amount (the “activated costs”) from a third party, such as for example. B a car dealership.

The lessee often has to offer money in advance as compensation for activated costs (so-called “activated cost reduction”, although it is sometimes mistakenly referred to as a “down payment”). The difference between the activated (adjusted) acquisition cost and the residual value is the depreciation component of the lease costs. In addition to depreciation, the lessee must also pay the lessor`s costs for financing the purchase of the vehicle, which are called “rents”; the rent also includes the owner`s profit. However, the tenant is responsible for paying for damages at the end of the lease that go beyond normal wear and tear. Note: Normal wear and tear is generally stricter in the case of a closed lease compared to a permanent lease. Suppose John Doe leases a Ford Mustang in 2021. The rental period is two years….