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Lease Balance

What is '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.

Explaining '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.


Further Reading


Market Evaluation of Off-Balance sheet financing: You can run but you can't hide
papers.ssrn.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Capital structure and the changing role of off-balance-sheet lease financingCapital structure and the changing role of off-balance-sheet lease financing
papers.ssrn.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Operating lease finance in the UK retail sectorOperating lease finance in the UK retail sector
www.tandfonline.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Impact of lease capitalization on financial ratios of listed German companiesImpact of lease capitalization on financial ratios of listed German companies
link.springer.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Bankruptcy costs and the financial leasing decisionBankruptcy costs and the financial leasing decision
www.jstor.org [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Operating leases: Impact of constructive capitalizationOperating leases: Impact of constructive capitalization
search.proquest.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Realized returns and the default and prepayment experience of financial leasing contractsRealized returns and the default and prepayment experience of financial leasing contracts
www.jstor.org [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Financial reporting quality, private information, monitoring, and the lease-versus-buy decisionFinancial reporting quality, private information, monitoring, and the lease-versus-buy decision
meridian.allenpress.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

Lease accounting: A review of recent literatureLease accounting: A review of recent literature
www.tandfonline.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …

The impact of operating leases on firm financial and operating riskThe impact of operating leases on firm financial and operating risk
journals.sagepub.com [PDF]
… ownership of the leased asset has important implications for the valuation of leases, because the lease payment to the lessor in that case would tend to represent exclusively a finance charge as the lessee de facto owns the asset …


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