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Car Lease Contracts
Q. Are there different kinds of leases?
A. Yes, several forms exist. Under the "closed-end"
lease contract, sometimes called a
"walk-away" lease, the car's value when you return it does not
matter unless you have put
extreme wear on the car. You return the car at the end of the term and
"walk away."
Payments are higher than under an open-end lease because the lessor (the
leasing
company) takes the risk on the car's future worth. An "open-end"
lease involves lower
payments. However, you gamble that the car will be worth a stated price,
the "estimated
residual value," at the end of the lease. If it’s appraised
value at the end of the term equals
or exceeds the specified residual value, you owe nothing and may be refunded
the
difference, if your contract provides for a refund. However, if it is
worth less, you pay
some or all of the difference, often called an "end of lease"
payment.
Q. What will a lease cost me?
A. You probably will have to pay a security deposit and lease
fee for the first month and
possibly the last. You may have to pay an initial "capitalized cost
reduction." This is
similar to a down payment when you buy a car. By paying a large amount
up front, you
could, in effect, reduce your monthly payments. But by doing this, you
lose one of the
advantages of leasing: lower up-front costs. Other expenses may include
sales tax, title,
and license fee, though the lessor may pay them. A lease may include insurance.
If not,
you must provide your own. You might have to pay for repairs and maintenance
after any
warranty period expires, unless the lessor agrees to pay in your contract.
At the end of the
lease term, you may have to pay an excess mileage cost if you have a closed-end
lease.
(Under an open-end lease, the final appraised value of the car will reflect
any excess
mileage.) Excessive wear and tear also may cost you.
Q. May I renew or extend my lease at the end of the term?
A. Yes, if your lease contained this option or you negotiated
for it. Such an option may
reduce your initial costs.
Q. May I escape my lease early?
A. You have signed a binding contract that obligates you to make
payments for a stated
term. However, your contract may contain an early termination clause.
This usually
requires a minimum number of monthly payments before you may cancel, and
may
require you to pay a penalty.
Q. What is a purchase option?
A. It allows you to buy the car when your lease term ends. The
lessor must state the
purchase price or the basis for setting this price in the initial lease
contract. Purchase
options are more common in open-end leases than in closed-end leases.
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Car Rental Contracts
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