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What Is a Closed-End Lease?
A closed-end lease is a type of car lease agreement where you’re not responsible for the vehicle’s market value at the end of the term. Instead, you agree to return the car after a set period—usually 24 to 36 months, and walk away or explore a buyout option.
It’s called “closed-end” because the terms are fixed, and there’s no requirement to purchase the vehicle when the lease ends.
Closed-End Lease Meaning in Car Leasing
In car leasing, a closed-end lease is the most common structure for personal vehicles. It offers predictable payments, mileage limits, and clear lease-end options. Once the term ends, you can:
- Return the car with no obligation (aside from possible fees)
- Buy out the lease if you want to keep the vehicle
- Lease a new car altogether
You’re not liable for any difference between the residual value and the actual market value—unlike in an open-end lease, which is typically used for commercial fleets.
How a Closed-End Lease Works
Here’s what defines a closed-end lease:
- Fixed term: Most run for 24 to 48 months
- Mileage limits: Typically 10,000 to 15,000 miles per year
- Wear-and-tear guidelines: Charges may apply if the vehicle is returned in poor condition
- Residual value: Pre-determined value used to calculate your buyout price
At lease maturity, you’re free to walk away without penalty if the car is within mileage and wear guidelines.
Benefits and Considerations
Pros:
- Predictable monthly payments
- No resale risk
- Option to buy at lease-end
Cons:
- Mileage limits can trigger overage fees
- Wear-and-tear charges may apply
- You don’t build equity unless you buy the car
Pro tip: If you’re unsure about long-term ownership or want to avoid the risk of vehicle depreciation, a closed-end lease is often the safer option.
What Happens at the End of a Closed-End Lease?
When your lease ends, the process is usually straightforward, but small oversights can lead to unexpected fees.
Here’s what to expect as you near the return date:
60–90 days before lease-end, you’ll typically receive a maturity notice from your leasing company. At this stage, you should:
- Schedule a pre-return inspection to check for excess wear or damage
- Confirm your remaining mileage and assess whether you’re at risk of overage charges
- Request a buyout quote if you’re considering purchasing the car
On return day, the vehicle will go through a final inspection. You may be responsible for a disposition fee (usually $300–$500), and any charges related to damage or mileage overages.
Who Should Consider a Closed-End Lease?
Closed-end leases work best for drivers with predictable habits, such as low annual mileage or short-term vehicle needs. They’re especially appealing to people who:
- Drive less than 15,000 miles per year
- Don’t want to worry about resale value or depreciation
- Prefer upgrading to a new vehicle every few years
- Want fixed payments and less end-of-term hassle
If you live in a city, drive mostly for commuting, or like the latest tech, this lease type offers simplicity and flexibility.
Related Terms in Closed-End Lease
- Previous term: Capitalized Cost
- Next term: Disposition Fee
- Also related: Lease Buyout, Residual Value, Open-End Lease