how an open end lease works
since the lessee must purchase the leased asset upon lease expiration that person bears the risk that the asset depreciates more than was expected by the end of the lease of course at the same time the lessee stands to realize a gain if the asset depreciates less than expected for example suppose your lease payments for a car are based on the assumption that a 20 000 new car will be worth only 10 000 at the end of your lease agreement if the car turns out to be worth only 4 000 you must compensate the lessor the company who leased the car to you for the lost 6 000 since your lease payment was calculated on the basis of the car having a salvage value of 10 000 basically since you are buying the car you must bear the loss of that extra depreciation conversely if the car is worth more than 10 000 at the end of the lease you receive a refund from the lessor there are different opinions on whether an open end lease is more appropriate for an enterprise that intends to own the vehicle at the end of the term open end vs closed end leasesin the case of vehicles procured through an open end lease typically there is no restriction on the mileage that can be accumulated during the terms of the agreement this allows the operator to use the vehicle as they see fit with the understanding that they will purchase the vehicle in the condition they have put it in a closed end lease by some accounts may make more sense for a general consumer who needs a vehicle that will make somewhat regular trips usually to work and home of predictable length meaning the mileage should be consistent and the wear and tear will be regulated an open end lease can make more sense for an enterprise because the company might be able to select the depreciation rate of the asset at the time of the signing allowing for more control of how the costs for the agreement play out furthermore an open end lease can inform the lessee about the financial stability of the company leasing out the asset by gauging rates they make available to their customers 