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What Is a Lease Balance?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 27 October 2014
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A lease balance is the amount of money that a leasing customer has left to pay according to the terms of a lease contract. This term is most often applied to vehicle leases, and may in some cases also be called a payoff amount, since it represents the amount that the leasing borrower owes to the party who’s leasing the vehicle or other asset. In a technical contract, the borrower may be called the “lessee,” and language regarding this party may explain the details of any single lease agreement.

It’s important to understand that the lease balance for a vehicle that is under a lease contract may differ quite a bit from the fair market value of the vehicle. This has to do with depreciation, as well as the fairly subjective value of a used vehicle, and the ways that conventional lease payments are calculated. If the person who is leasing the vehicle wants to terminate the lease for any reason, or the vehicle is somehow damaged or destroyed, the two parties will have to contemplate how to deal with the remaining lease balance.

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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 will not need to pay out much more than the vehicle is worth if they get into an accident, or if the vehicle is otherwise damaged. In either a leasing situation or an auto loan agreement, if the lessee or borrower owes more than the vehicle is worth, this is typically called being “underwater” on a lease or loan. It’s important for someone who is leasing a vehicle to always be aware of the lease balance, and how much they have left to pay off on that vehicle. It’s also important to know whether extra mileage or other factors are reflected in the lease balance or not.

One important element of the lease balance is a balloon payment. The balloon payment may apply on some types of leases called open-ended leases. In these situations, the person who is leasing a vehicle will need to make a larger payment at the end of the lease, in addition to the periodic payments that the person has made throughout the term of the lease. Since a balloon payment can be uniquely difficult for some borrowers to afford, those who are inspecting a lease agreement should look very carefully for these kinds of obligations.

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