Closed End Leasing

Closed-end leasing has become very popular in recent years, whereby you simply pay for the depreciation on your new car. However, unless you buy the car at the end of the contract, you never get to own it. This type of finance is ideal for anyone who wants to keep their repayments low and like a new car every two to four years.

You pay a deposit and monthly instalments (typically at 9-14% APR), leaving a lump sum to pay off at the end of the contract. This deferred sum is set by the finance company, and is known as the minimum guaranteed future value (MGFV) or the balloon payment. This is the amount that the lender guarantees that your car will be worth at the end of the contract.

At the end of the contract, you have several options:

• Hand the car back to the dealer and walk away.
• Sell the car privately to fund the final payment and hopefully give you a little extra cash.
• Pay the deferred sum and keep the car.
• Change to another closed-end leasing scheme. If the car is worth more than the MGFV, you can use the difference as a deposit on a new car.

Although the monthly repayments are often lower, in general, this type of leasing usually works out more expensive than than simply financing the vehicle over the longer term in the first instance. You will be charged for any excess mileage stated in the contract, and you will have to pay for any damage to the car.