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Canadian Financial, Real Estate and Mortgage Glossary
How often this word is used
50% - Moderately
50% - Moderately
|Filed Under:||automotive, financial-banking|
|Tags:||automotive, banking, lease|
Definition of open-end lease
- open-end lease
- 1. A type of lease that offers lowers payments, but more risk to the lessee because he or she must pay the difference between the residual value of the automobile as stated in the lease and the fair market value, if lower, at the end of the lease. The lessor pays for the appraisal that determines the automobile's the value. If the lessee does not agree with the value, he or she can pay for an independent appraisal by an impartial third party. All parties must agree to the selected appraiser. Also know as a finance lease.
Related Terms and Acronyms:
- direct financing When a buyer obtains financing through an outside financial institution rather than through the dealer.
- excess wear charge Most leases set limits for wear and tear on the car during the lease term. The lessee must pay charges for exceeding the limits when turning in the car at the end of the lease.
- lease (lse) A written agreement in which the property owner allows a tenant to use property in exchange for rent, and for a specified period. Or, a written agreement in which a car dealer allows a consumer to use a vehicle in exchange for payments for a specified period.
- money factor A leasing term that expresses the cost of borrowing. It is similar to the interest rate paid on a conventional car loan, but it is expressed as a difficult-to-understand fraction. To convert the money factor to a recognizable interest rate, multiply it by 24. For example, a money factor of .00345 x 24 = 9 percent interest. The money factor is negotiable, and consumers who lease a new car should look for a money factor close to the current interest rate charged for new-car loans.
- option A legal agreement giving someone the right to buy, sell or lease a property or item at specified terms for a specified period.
- purchase option An agreement where a portion of monthly rent can be credited toward the purchase of a property.
- rebate A manufacturer's reduction on the price of a car as an incentive to buyers. Rebates appeal to people with no credit or less-than-perfect credit who cannot qualify for the lowest-rate loan. A rebate may also appeal to first-time buyers who don't have a lot of cash for a down payment or another car to trade in.
- step down lease A lease providing for decreases in rental payment at specified dates.
- step up lease A lease providing for increases in rental payment at specified dates.
- walk-away lease The most common type of car lease, also known as a closed-end lease. The lessee may return the car at the end of the lease term, pay any end-of-lease costs, such as the disposition fee, and the lease agreement is over. In a closed-end lease, the lender assumes the risk of predicting the value of the vehicle (its residual value) at the end of the lease's term. Closed-end lease payments are somewhat higher than open-end lease payments.
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