To Lease or Not to Lease

Early Termination Ending a lease before its term has run, which, we would add, can be very expensive.

Equity The difference between what a vehicle is worth at any given time and the amount owed.

Gap Insurance An insurance policy designed to cover the "gap" between what conventional replacement insurance will pay for - should the car be stolen or wrecked-and the amount owed on the lease.

If you lease a car, van, or truck, gap insurance is a must. If it is not provided by the lease company, then you should arrange for it on your own.
Here's why: Let's assume that your leased vehicle is stolen or that a tree falls on it and totally wrecks the car. Your normal vehicle insurance should reimburse you for the value of the vehicle at the time of the loss. However, in all probability, the insurance coverage or payment to you will amount to less than what it will cost you to terminate the lease. This gap can represent several to many thousands of dollars.
To reiterate: The gap insurance covers the difference between the vehicle's value and the amount owed on the lease.

Lease There are basically two types of leases. The most common-and the only one you should probably ever consider - is the closed-end lease. The other, which we'll cover in a moment, is the open-end.

The closed-end lease is an agreement in which the customer has the right to walk away from the vehicle at the end of the lease with no additional charges except for excess mileage or excess wear and tear.

At the end of the majority of closed-end leases, the lessee is given the opportunity to buy the car for an amount equal to the residual value of the car as stated in the lease contract. If the residual value is higher than that actual current wholesale market value, the lessee can simply walk away with no other obligation. If the residual value is lower than the current wholesale market value of the car, the lessee might want to buy the vehicle and try to sell it for a profit. This doesn't happen very often, but it does on occasion and we'll cite an example later.