Should You Consider a One Pay Lease?

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.

What is a One Pay Lease?

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.

Types of Single-Pay Leases

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:

• You make one payment that covers the car’s depreciation over the lease term, sales tax on that value, and the sum of all remaining monthly payments. This option is typically best for the customer, not the lease company. You are not paying for the entire value of the vehicle, only for the depreciation portion of your lease. The total interest is based on the residual portion, so you do not pay interest on the depreciation portion.
• In the second method, which is more common, the lessor calculates the monthly payments in the traditional way. Then, they multiply that value by the number of months in your lease term to get your up-front payment. This method is more profitable for the dealer and it is more straightforward to calculate.

Advantages of a Prepaid Lease

There are many reasons to consider a one-pay lease including:

• Save money. Many lessors will give you a huge break on interest (money factor) when you pay upfront, which can add up to thousands of dollars over the course of your lease.
• Banks offer discounts on monthly payments. Some banks offer deals for people that make one-pay leases because it reduces the uncertainty of the contract for the lender.
• Paying up front is a great option for people that have a large cash savings but a damaged credit score. It provides a viable alternative compared to conventional leasing.
• It’s a great step towards buying a car if you choose to. If you do not want to keep the vehicle, you only paid for depreciation. If you do decide to keep it after the lease ends, you’ve already paid for a large portion of it.

Considerations of Pre-Paying Your Lease

Paying for your lease upfront may sound like a great idea, but it’s not without drawbacks. Here are some things to consider first:

• You need a lot of cash at signing.
• There is a higher risk if something happens to the vehicle during your lease. If the car is severely damaged or stolen, then the insurance will only cover the current market value of the car, not all of the money you already put into it.
• It is difficult to get your money back if you transfer out of the lease.

How to Qualify for a Single-Pay Lease

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.

What if the car is stolen or damaged during the lease?

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.

Negotiate the Best Price

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.

Is a One-Pay Lease Worth It?

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.

Frequently Asked Questions

What’s a one pay lease?

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.

Can I save money doing a one pay 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.

Do I need a good credit score to get a prepaid lease?

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.

What happens if the car is totaled or stolen?

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.

Does it make sense to combine a short term lease with a one pay lease?

No, it doesn't make sense to get a short term lease when you are prepaying.

How can I get the best deal on my lease?

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.