Lease Balance

AAA

DEFINITION of 'Lease Balance'

The amount of money that a customer owes under the terms of a vehicle lease contract. The lease balance becomes important in two main situations. The first is in the event that a car is stolen and not recovered, is totaled in an accident or is otherwise destroyed. The second situation is if the lessee wants to terminate the lease early for any other reason.

INVESTOPEDIA EXPLAINS 'Lease Balance'

A vehicle's fair market value is often different from its lease balance, because vehicles depreciate quickly at the beginning of their life but lease payments are flat over the life of the agreement. When a lease agreement is terminated for any reason, the lease's early termination payoff provision is used to calculate the lease balance and determine how much the lessee must pay to end the agreement. This amount could be several thousand dollars.


In the first situation, insurance will cover only the vehicle's fair market value, and the lessee must make up the difference through gap insurance or by paying out of pocket. In the second situation, the lessee cannot simply turn in the car to the dealer and walk away; he must pay the difference out of pocket or avoid the payment by transferring the lease to another party.

RELATED TERMS
  1. Gap Amount

    Insurance will only cover a certain amount of coverage if leased ...
  2. Fixed Price Purchase Option

    The right, but not the obligation, to buy a leased item at a ...
  3. Open-End Lease

    A rental agreement that obliges the lessee (the person making ...
  4. Lease

    A legal document outlining the terms under which one party agrees ...
  5. Leveraged Lease

    A lease agreement that is partially financed by the lessor through ...
  6. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
RELATED FAQS
  1. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Full Answer >>
  2. How can I use the correlation coefficient to predict returns in the stock market?

    Simple interest is most commonly seen in short-term loans, such as those from payday lenders or pawn shops. You might see ... Read Full Answer >>
  3. What is the difference between secured and unsecured debt?

    The difference between secured and unsecured debt is the presence or absence of collateral backing. Secured Debt For a debt ... Read Full Answer >>
  4. How have low interest rates affected lease rates in the automotive sector?

    Low interest rates have contributed substantially to increased lease rates in the automotive sector. In recent years, the ... Read Full Answer >>
  5. Does shopping for the best interest rate affect my credit score?

    Shopping for interest rates does not necessarily affect a person's credit score. When a borrower submits an application to ... Read Full Answer >>
  6. What types of companies are in the automotive sector besides auto manufacturers?

    The automotive sector includes several types of companies besides auto manufacturers. Some of these companies focus on the ... Read Full Answer >>
Related Articles
  1. Retirement

    Should You Buy Property On Leased Land?

    Find out what to consider before investing in a leased-land property.
  2. Home & Auto

    New Wheels: Lease Or Buy?

    These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you.
  3. Home & Auto

    Rent-To-Own Real Estate Full Of Pitfalls

    Before you consider this type of arrangement, you should be aware of how it works, who benefits and the many things that can go wrong.
  4. Retirement

    Are You Ready to Rent?

    If you think it's time to test your wings and leave your parents' nest, read on.
  5. Options & Futures

    Rent To Own; Own To Rent

    This method can help first-time buyers afford a home using a rent-to-own strategy, and it can also be good for investors.
  6. Trading Strategies

    Eyeing a Loan? Consider Skipping the Banks

    Peer-to-peer lending platforms, such as Lending Tree, Lending Club and Prosper, offer borrowers newfound leverage. Here's a look.
  7. Credit & Loans

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  8. Credit & Loans

    Car Title Loan Requirements

    Here's a list of what you need to qualify for a car title loan. Most important: having sole ownership of your car with no liens.
  9. Credit & Loans

    Car Title Loan Limits

    You can usually get 25% to 50% of a car's value - but could pay more in interest than you borrowed if the loan rolls over a lot before it's paid off.
  10. Credit & Loans

    States That Allow Car Title Loans

    Only some states permit car title loans – and those that do may have restrictions. Check this list to see what to expect.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center