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August 19, 2020
Leasing allows you to drive newer vehicles for a lower monthly payment than buying a car. But high interest rates are often a deterrent for people considering leases and few know there is actually another option.
With a one pay lease (also known as as single-payment or prepaid lease) you pay for your entire lease up front.
In many cases, this kind of lease can end up saving you money, but there are some risks to consider. Read on to learn all about the one-pay lease and if it’s the right choice for you.
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In a traditional lease, you must pay for the depreciation of a vehicle for the set amount of time you will use it for. Many aspects of a single-pay lease are similar to the standard lease, as you still agree to the terms of the lease including return condition and pre-determined miles. However, instead of paying through monthly installments, you pay your entire lease up front at the beginning.
That’s right, there are no monthly payments, you just hand over all of the money right away. When the lease period ends, you can return the vehicle or buyout the vehicle for the remaining, agreed-upon value.
Different companies will calculate the single-pay lease differently, so you must know the options before agreeing to any lease. The most common two methods include:
There are many reasons to consider a one-pay lease including:
Paying for your lease upfront may sound like a great idea, but it’s not without drawbacks. Here are some things to consider first:
While it is often easier to get approved for a prepaid lease, you still must qualify financially. For one, you must have the money available to pay for the lease all at once. Additionally, you still will need a good credit score. Since you are pre-paying much of the financial obligation, you will not need as high of a credit score as you would with a conventional lease, but you will still need to provide your credit score.
Keep in mind that pre-paying for your lease will not help you build your credit score since you have no risk of defaulting on a monthly payment. However, it will still stay on your credit report until you return the car.
When you pay for your lease upfront, you are taking a bigger risk if something happens to the car. The insurance company only pays for the market value of the car if it is stolen or totaled during the lease. That means the insurance will not cover the total amount you already paid for the lease, which means you could lose a lot of money. The best way to avoid that hazard is to ensure you choose a lease with GAP insurance, or purchase your own GAP insurance if your lease does not include it.
When you prepay for a lease, you make a large cash down payment. Because of this, you can get a lower finance rate. Make sure to get the best rate possible, review current lease deals, and negotiate the best price for your lease. Even a small price reduction can add up when it comes to the total cost. Get quotes from 6-8 dealers in the area before committing to any lease.
In some instances, a one-pay lease can benefit you immensely, but there are some cons as well. You must decide if this type of lease is right for you. First, you should examine what you will actually save based on the dealer’s method of calculating the lease. Also consider the chances that you would want to swap the lease or pull out, because you may not get your money back if that happens during the lease.
There are some situations that render themselves to single-pay leases. If you have substantial equity in a vehicle to trade-in but want to lease your new car, then you may want to consider the one-pay lease. Additionally, if you have a blemished credit profile a single-pay lease may be a better option but you still need the cash available.
If you are considering a prepaid car lease, make sure you find out how the dealer computes it and if you save any interest and tax charges. Speak with the dealer’s Finance Manager for the most accurate information, and don’t be afraid to negotiate your best price.
For this kind of lease, you prepay for the entire lease agreement with a single, upfront payment rather than spreading the payment over months like in a traditional lease.
Depending on how the dealer calculates the single-pay lease, you may be able to save on interest costs and taxes. Always ask for estimates of the total cost as a standard contract and a single-pay option.
You do not need as high of a credit score for a single-pay lease as you would for a conventional lease, but the dealer will check your credit. To qualify, you mainly need to have the money up front.
Since you paid for the lease upfront, you do put yourself at financial risk of the car is totaled or stolen. Protect yourself from this with GAP insurance.
No, it doesn't make sense to get a short term lease when you are prepaying.
Compare prices from several dealers in your area and ask to see both the standard and one-pay contract options. Learn how to negotiate a car lease.
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Posted in Car Buying Tips |