A closed end lease is a lease agreement that puts no obligation on the lessee (the company or person making lease payments) to purchase the leased asset at the end of the agreement. Also called a “true lease”, “walkaway lease” or “net lease”.

Since the lessee has no obligation to purchase the leased asset upon lease expiration, that person or company does not have to worry about whether the asset will depreciate more than expected throughout the course of the lease. These leases will include a mileage limitation to allow the leasing company to price more accurately.

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 of owing money at lease end.

At the end of the lease term, the lessee pays the difference between the vehicle sale price and the depreciated book value. While there are no excess mileage or abnormal wear and tear charges, these costs will be reflected in a lower residual value.