Everything You’ve Heard About “Closed-End” Leasing is Wrong
There are numerous misconceptions floating around regarding closed-end or “walk-away” leasing, especially when referring to the commercial world. Unfortunately, these myths have resulted in some businesses shying away from closed-end leasing, even if it would be beneficial to their company. We’re here to set the record straight. Here are 5 of the most common myths associated with closed-end leasing, along with the truth about how the programs really work.
Myth #1: Closed-End leases costs more than Open-End leases.
The Truth: The truth is that it’s impossible to substantiate a blanket statement like that. Everyone’s situation is different, and what may be more cost effective for one company, may not work the same for another. Additionally, often times it’s not the type of lease that determines which solution is more cost effective, but rather the fleet management company itself. While Motorlease prides itself in providing straightforward “all-in” pricing that insulates our clients from the risks of the used vehicle market, and allows them to accurately forecast their expenses years in advance, others prefer to present a lower upfront number, but then charge for things such as curtesy deliveries, interim rent and interest, acquisition and disposition, driver interaction, out-of-network maintenance, etc. When comparing the cost of different programs, it’s important that you consider all of the associated expenses, not just what’s presented as your initial monthly lease payment.
Myth #2: Closed-End leases come with high excess mileage charges.
The Truth: With a commercial closed-end lease, any applicable excess mileage charges would be there only to recoup the lost depreciation in a vehicle, not as a penalty or source of profit, like in a retail lease. In most cases, commercial excess mileage fees are significantly lower than a retail lease, and sometimes there are no fees at all. Motorlease also offers the unique opportunity for companies to “pool” their mileage, thus providing credit for vehicles returned under mileage to be used to offset vehicles returned over mileage.
Myth #3: Closed-End leases tend to be inflexible and can’t be customized to meet my specific needs.
The Truth: This may be true for a retail lease, but not a commercial lease. A commercial lease is designed to work within the business environment. Commercial leases can sometimes be re-written mid-term, and terminated early without leaving you responsible for the entirety of the remaining rent. With a commercial closed-end lease, fleet management companies are willing to work with you in order to develop a solution that works best for all parties involved.
Myth #4: You have to return the vehicle the day the contract ends.
The Truth: This is a fallacy as there is often flexibility when it comes to lease expiration. Whether you’re awaiting a replacement vehicle, or just aren’t quite ready to turn in your current vehicle, your fleet management company will often work with you to come up with a solution. However, it’s important to recognize that there are some fleet management companies who may restrict or eliminate services, such as a full maintenance program, depending on the mileage of the vehicle and how far past the contract end date the vehicle is kept out. Conversely, there are others like Motorlease, who do not have those restrictions.
Myth #5: Closed-end leases result in high damage-on-return bills when the vehicle is turned in.
The Truth: Again, while this may be true with a retail closed-end lease, it is not the case in the commercial world. A good fleet management company analyzes the fleet before writing a program, looking at things such as the vehicle’s anticipated function, location, drivers, etc. This allows the fleet management company to set proper residuals for the vehicles based on their anticipated condition upon return. Doing so will generally allow the fleet to avoid high damage-on-return bills.