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.

BREAKING DOWN '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. Bargain Renewal Option

    A clause in a lease agreement that gives the lessee the option ...
  2. Closed-End Lease

    A closed-end lease is a type of rental agreement that does not ...
  3. Land Lease Option

    An option within a lease contract that grants the lessee the ...
  4. Lease Payments

    Lease payments are tied to the terms of different forms of leasing ...
  5. Operating Lease

    An operating lease is a contract that allows for the use of an ...
  6. Fixed Price Purchase Option

    The right, but not the obligation, to buy a leased item at a ...
Related Articles
  1. Managing Wealth

    Why You Should Buy A Car Instead Of Leasing

    While leasing has certain advantages, buying a car tends to save you money in the long run and offers greater flexibility.
  2. Personal Finance

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  3. Personal Finance

    New Wheels: Lease or Buy?

    Buying or leasing a car both have advantages and drawbacks. Find out which is best for you.
  4. Personal Finance

    Make the Right Choice: Buying or Leasing a Car

    Ask yourself these questions before deciding between leasing or buying a car.
  5. Managing Wealth

    4 Ways to Get the Best Deal on a Car Lease

    Car buyers typically negotiate when purchasing a vehicle, but many don't negotiate when leasing a car. There are several ways to save if you ask.
  6. Personal Finance

    Should You Buy or Lease a New Car?

    Deciding whether to lease or purchase a car depends on a number of factors.
  7. Managing Wealth

    Your Lease Is Up: When Should You Buy The Car?

    In general, the fact that you know the car is to your benefit. Before deciding, compare the buyback price to what the car would go for on the open market.
  8. Managing Wealth

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
  9. Personal Finance

    Should You Borrow Money for a Car Purchase?

    Does it make sense to take out a loan, pay cash or lease a car?
  10. Investing

    8 Lease Clauses You Need To Know

    If you're renting an apartment this year, beware of signing contracts with these tricky clauses.
RELATED FAQS
  1. What is the importance of residual value in an automobile lease?

    Find out how dealerships assign residual value and why this is an important factor in car leases. Learn about a tactic some ... Read Answer >>
  2. What types of assets may be considered off balance sheet (OBS)?

    Learn about what types of assets are often accounted for using the off-balance-sheet method and why this accounting technique ... Read Answer >>
  3. If a telecommunication company wants to build a tower on my land how much should ...

    Get help in understanding how much income it is possible to receive for leasing land to a telecommunications company for ... Read Answer >>
  4. What are typical forms of long-term debt for a public company?

    Learn typical forms of long-term debt for a public company, such as bonds, term loans, paid-in-kind notes, leases and hybrid ... Read Answer >>
Trading Center