With an open end lease, the lessee assumes the risk for the residual value at the lease end term. This option generally provides for lower monthly payments, although a weak resale market could create a higher risk. Should the lessee need to sell the vehicle prior to the end of the lease, he may owe more than the value of the vehicle.
Residual values are affected by vehicle type, mileage, vehicle condition, and market timing. While the lower lease payments may appear attractive, actual monthly vehicle cost could be more due to the factors above. While there are no excess mileage or abnormal wear and tear charges, these costs will be reflected in a lower residual value.
At the end of the lease term, the lessee pays the difference between the vehicle sale price and the depreciated book value (based on the amortized rental charge). If the sale price is in excess of the depreciated book value, the Lessee retains the excess funds