READING THE FINE PRINT & OTHER UNREALISTIC EXPECTATIONS
It’s kind of comforting that despite humanity’s many differences, we all have a few common things that we share: we all rehearse arguments in our heads before actually having them, we all snooze morning alarm clocks at least three times before actually waking up, and under no circumstances is anyone on the planet reading terms and conditions or ‘the fine print’.
But we should. We really, really should. Reading the fine print is the difference between having a transparent experience and accidentally agreeing to pay hidden fees. It’s the difference between knowing what you’re getting yourself into and, well, not. Because the old school process of leasing a car was built on the premise of confusing the consumer, it’s the perfect testimony to this revelation. Most consumers don’t have any idea that they are actually different types of leases and reading the fine print can save you from agreeing to the wrong one.
Closed-end leases are often called “walk-away” leases because they allow the consumer to simply walk away at the end of their leasing term. The consumer returns their vehicle at the end of their lease and assumes no other responsibilities (assuming that they actually stayed within the boundaries of their leasing contract and didn’t go over their mileage or cause any damage to the vehicle). This is the most common kind of lease – it was based on the idea that your annual mileage is more or less predictable and that the residual value at the end of your lease (or the left over value of the car once you’re done with it) is relatively predictable.
When you sign the leasing contract under closed-end leases, the leasing company estimates what the future residual value of the car will be once you return it based on the mileage you sign for, and price your leasing offer based on that. If at the end of a closed-end lease the residual was miscalculated and the value of the car is actually less than the residual, the leasing company pays the difference, not you.
These types of leases are primarily ideal for commercial or business use. Here, the annual mileage is less predictable than closed-end leases and is, most likely, much higher than the average 12,000 miles per year of a non-business lease.
In open-end leases, the person leasing the car takes all the financial risks, not the leasing company. This isn’t really an issue for businesses because the cost can be expensed. In this type of leasing, the lessee is responsible for paying the difference between the estimated residual value of the car and the actual market value of the car at the end of his lease. The residual is usually set much lower for open-end leases than for closed-end leases, which might reduce the financial risk but also might significantly increase the monthly payment.
As a regular consumer, make sure that you read the contract you are signing very closely to ensure that you are signing a closed-end non-business lease, to avoid any sticky situations at the end of your lease.
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