First, and most importantly, federal regulations require that ALL Lease contracts CLEARLY state the type of lease you are contracting for. The following is a brief description of the different types of leases you may encounter. If you are not certain what you are signing...ASK!
Closed End Lease Plan
· Allows you to operate vehicles and only pay for the portion of the vehicle you use.
. You have the option of purchasing the vehicle at the end of the lease or during the term of the lease
· You are responsible for excess mileage and excess wear and use charges
· If you terminate early, other charges will apply
Closed-end leases are based on the concept that the number of miles you drive annually can be predicted (12,000 miles per year is typical), that the vehicle will not be driven in rough or abusive conditions, and that its value at the end of the lease, (residual), is therefore reasonably predictable.
At the time you lease, the leasing company will garuantee the vehicle's lease-end residual value based on the expected number of driven miles. If the vehicle is actually worth less than the residual when you turn it in, the leasing company takes the financial hit, not you.
On the other hand, if the vehicle is worth more than the residual, you have the option to purchase, and you may want to buy the vehicle, or sell it and pocket the difference. This happens frequently.
Retail Finance Plan
· Attractive APRs and flexible terms are available
· You enjoy the benefits of full ownership from day one
Preferred Option Finance Plan (Balloon)
· Available in limited states, sometimes referred to as "Seasonal or Quarterly". Can be designed for contractors and farmers, etc., whose income is seasonal.
· You retain titled ownership of the vehicle
· Flexible end of term options depending on state laws and buyer qualifications
Open End Lease Plan
· Commercial open end lease with a Terminal Rental Adjustment Clause (TRAC)
· Vehicles can be customized with specialty equipment and paint
· Your end of term options are:
o You can purchase the vehicle at the agreed upon TRAC Value
o If not purchased, Toyota Financial Services (TFS) will sell the vehicle at lease end. If the net sale amount is over the TRAC value, you receive the surplus. If under the TRAC value, you are responsible to pay the deficit.
o Projected end of term TRAC value is established at lease inception based on vehicle usage.
Open-end leases are used primarily for commercial business leasing. In this case the lessee, not the leasing company, takes all the financial risks, which is not so much a problem for a business, since the cost can be expensed. Annual mileage on a business lease is usually much greater and less predictable than the average 12,000 miles-per-year of a non-business lease.
In open-end leases, you are responsible for paying any difference between the estimated lease-end value (the residual) and the actual market value at the end of the lease. This could amount to a significant sum of money if the market value of your vehicle has dropped or you drive many more miles than expected.
Often, the residual for an open-end lease is set much lower than for a non-business closed-end lease, which helps to reduce the lease-end risk, but can also increase the monthly payment.
Additional Business Leasing Benefits...
Consolidated Billing Statements
· Available upon request for business customers when multiple vehicles are financed
· All monthly invoices are consolidated into a single statement with summary details on individual accounts
· Allows you to remit one payment covering all accounts
Vehicle Credit Lines
· Pre-qualified vehicle credit lines for any of the Business Solutions finance options
· Allows you to plan ahead for future acquisitions
· Eliminates the need to go through the credit approval process each time you finance an additional vehicle
· Exclusively for acquisition of vehicles on pre-published TFS lease or finance contracts
· Pre-qualified vehicle credit lines are subject to additional terms and conditions
· One master agreement is signed, additional vehicles financed or leased are handled by a supplemental schedule
· Only one master agreement needs to be signed
· Allows for varied delivery dates
· Available on Closed End Lease, Open End Lease, and Retail Finance Plans
Vehicle Protection Products
· Pre-paid maintenance is a convenient and affordable way for you to maintain your vehicle according to the manufacturer's recommended maintenance schedule
· GAP (Guaranteed Auto Protection) helps protect your business from an unexpected financial obligation if your vehicle is declared a total loss from causes such as theft, accident, fire, or flood
· Vehicle Service Agreements supplement your vehicle's warranty on covered components
In my next post I will try and explain some common lease terminology....