Lease balance is the amount left to pay on a lease, often used for vehicle leases. It can exceed the vehicle’s fair market value and may include a balloon payment. Gap insurance can help cover the difference.
A lease balance is the amount of money a lease customer has left to pay under the terms of a lease. This term is most often applied to vehicle leases, and in some cases may also be referred to as a payment amount, as it represents the amount the lease borrower owes to the leasing party on the vehicle or other asset. In a technical contract, the borrower may be called the “lessee,” and the language regarding this part may explain the details of any individual lease.
It is important to understand that the lease balance on a vehicle that is under a lease may differ significantly from the fair market value of the vehicle. This has to do with depreciation, as well as the rather subjective value of a used vehicle and the ways conventional lease payments are calculated. If the person renting the vehicle wants to terminate the lease for any reason, or if the vehicle is damaged or destroyed in any way, both parties will need to consider how to handle the remaining balance on the lease.
Since the lease balance can exceed the value of a vehicle, many drivers who lease vehicles use something called gap insurance to ensure that they won’t have to pay much more than the vehicle is worth if they are involved in an accident or if the vehicle is otherwise damaged. Whether in a lease or auto loan situation, if the lessee or borrower owes more than the vehicle is worth, this is generally referred to as being “underwater” on a lease or loan. It is important for someone who is leasing a vehicle to always be aware of the lease balance and how much is left to pay on that vehicle. It is also important to know whether or not additional mileage or other factors are reflected in the lease balance.
An important element of the lease balance is a balloon payment. The balloon payment may apply to some types of leases called indefinite leases. In these situations, the person leasing a vehicle will be required to make a larger payment at the end of the lease, in addition to any periodic payments the person has made during the lease term. Because a balloon payment can be exceptionally difficult for some borrowers to pay, those reviewing a lease should look carefully at these types of obligations.
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