Operations

Open vs. Closed End Leasing: Which Is Right For You?

Posted on June 9, 2009 by Chris Brown

Page 1 of 4

Commercial leases are divided into two types: the open-end TRAC lease and the closed-end lease. Each has a different set of rules and parameters. Each works better for different fleet situations.

Very simply, in an open-end lease the lessee assumes the depreciation risk but has more flexible terms. In a closed-end lease, the lessor assumes the depreciation risk but the terms are more restrictive.

We asked lessors at three fleet leasing and management companies to dig a little deeper into both to help you determine the lease that works best for your situation. All four write both types of leases, and have no vested interest in one over the other. The first step is to understand the definitions of both types of leases.

Open-End TRAC (Terminal Rental Adjustment Clause) Lease

- This type of lease is also known as a finance lease, which as the name implies, permits the lessee to determine the vehicle's service life after a short minimum term, usually 12 months. After this period, the lease may be terminated at any time without penalty.

- The lessee can select the depreciation factor, used to amortize the capitalized cost (with some limitations). Different factors can be used for different vehicles based on specifications and usage.

- The lessee assumes the depreciation risk. The capitalized cost (original purchase price) is reduced monthly by a predetermined amount (depreciation factor) for as long as the vehicles remain in service.

- When the vehicle is taken out of service, the sales proceeds are applied to the book value (capitalized cost minus accumulated depreciation) with any resulting gain passed on to the lessee. If the selling price is less than the book value, the lessee must pay the difference, although provisions for a percentage sharing of gains or losses between lessee and lessor may sometimes be available.

View comments or post a comment on this story. (2 Comments)

More News

Windy City Limousine & Bus Wins "Best Of" Award

The company's diverse fleet and years of experience have earned it many achievements.

Fugitaboutit! Operators Deal With NYC Traffic Woes

Weather and mass transit delays always create additional problems, but 50,000 TNC vehicles ratchet up congestion.

Arkansas Operation Recognized As Small Business of the Year

Pinnacle Car Services, Inc. recieved the accolade from the Greater Bentonville Bella Vista Chamber of Commerce.

How To Make Your Buses Comply With The Latest Rules

eNews Exclusive: Joe Guinn guides operators on the best ways to prepare for the large leap from sedans and SUVs to buses and motorcoaches.

What Is The Future Of The New Luxury Traveler?

There is a growing demand for more human connectedness and meaningful experiences for both adults and children.

See More News

Facebook Comments ()

Comments (2)

Post a Comment

Submit

Blog

See More

LCT Store

LCT Magazine - May 2017 $12.95 Post International LCT Show Issue COVER STORY: * Best Operators of 2017: Their Winning Secrets Revealed * *



Connect

Experience the three annual industry events for networking for business, showcasing vehicles and products, and getting the tools for success.

Read About Your Region

What’s Happening Near You?
Click on any state to see the latest industry news and events in that region.

More From The World's Largest Fleet Publisher

Automotive Fleet

The Car and truck fleet and leasing management magazine

Business Fleet

managing 10-50 company vehicles

Fleet Financials

Executive vehicle management

Government Fleet

managing public sector vehicles & equipment

TruckingInfo.com

THE COMMERCIAL TRUCK INDUSTRY’S MOST IN-DEPTH INFORMATION SOURCE

Work Truck Magazine

The number 1 resource for vocational truck fleets

Metro Magazine

Serving the bus and passenger rail industries for more than a century

Schoolbus Fleet

Serving school transportation professionals in the U.S. and Canada

Please sign in or register to .    Close