Hi, I am about to finalize the first lease I have done via 1-pay payment (it’s a Honda). The business manager at the dealership indicated that 1-pays are risky and I should pay monthly… in the event that the car was totaled, my insurance would pay off the car to Honda Financial but I would be completely out of the 1-pay. I called my insurance to add the car to the policy and asked them, but the person didn’t seem too knowledgeable and suggested gap insurance, and said that would cover the difference in the loan and the book value. I think a) Honda includes Gap already, and b) that doesn’t really get my payment back - just gets Honda financial their money back.
Is this correct? Is there anything I can add to my insurance policy to protect me? Wondering if folks have experience with this. Thanks!
Relevant sections of GMF and Audi one pay leases have been posted here.
You get a replacement car or a refund of the unused portion of the lease.
I’ve seen no evidence that leads me to believe that any other manufacturer works differently. I vaguely recall one lone contradictory anecdote about Mercedes Benz posted some years ago.
They do leases every day. Ask them to see the boilerplate language.
That’s baloney. They probably don’t know how to structure a one-pay.
GAP covers the difference between the Realized Wholesale Value and the Adjusted Lease Balance in the event of a deficit. If the realized value exceeds the adj. balance, you will be refunded the difference. However, it’s best to review your early termination criteria in your Honda lease agreement. That is the final authority. Doesn’t matter one hoot what the dealer says… most are clueless. Below is an early termination excerpt from a GMF contract and I suspect Honda’s is similar…
A prepaid lease with one lump sum due at signing is called a single payment lease. Consider the following single pay lease with the given lease inception and termination dates.
Term = 48
Selling Price = 42860.10
Gross Cap Cost (GCC) = 42860.10
Adj. Cap Cost (ACC) = 42860.10
Initial Lease Balance (ILB) = ACC – Base Single Payment = 26615.94
Residual Value (RV) = 32045.00
Discounted Money Factor (MF) = .00151
CYR = 4.64975724%
RATE = 4.64975724%/12 = .00387480
Base Monthly Payment = 338.42
Base Single Payment = 48 x 338.42 = 16244.16
Sales Tax Rate = 8.00%
Lease Inception Date: 11/01/24
Lease Termination Date: 05/19/25
Elapsed Months = 7
Remaining Months = 41
The Constant Yield Rate (CYR) is the interest rate implicit in the lease and is calculated below as 4.64975724% compounded monthly. The constant yield rate or actuarial rate is referenced in the early termination section in many lease contracts. Like the cost of money (e.g., MF), it is not disclosed in lease contracts but can be calculated using the appropriate data above…
CYR Calculation
CYR calculation using the TI-84 Calculator…
N = 48 I% = 4.64975724…
PV = -(42860.10 – 16244.16)
PMT = 0
FV = 32045.00
P/Y = 12
C/Y = 12
PMT: BEGIN
CYR calculation using Excel…
CYR = 12 x RATE(term, payment, -(ACC - Base Single Payment), RV, 1)
= 12 x RATE(48, 0, -(42860.10 – 16244.16), 32045.00, 1)
= 4.64975724…%
IF the realized value is 30000, then your refund is 30000 - 27346.31 = 2653.69 not to exceed the amount of the unused base scheduled payments (see definition above). BTW, if this were a monthly payment lease, your adj. lease balance is 33775 which means you owe 30000 - 33775 = (3775) unless covered by GAP. However, this is limited by the total remaining base payments which would be 7 x 398.35 = 2788.45. Accordingly, you owe 2788.45. This is caused by the fact that you would no longer have the discounted single pay money factor. Instead of .00151, it would be .00231 which equates to a CYR = 5.556918… YIKES! Also, with the one-pay versus the monthly pay, more interest is levied for the monthly pay. So, the dealer is not making any sense. In either case, you will owe an additional charge for excess wear/tear, excess mileage, and the disposition fee. Also, either way the realized wholesale value remains the same. Again, check you Honda lease contract for specifics.
NOTE: GAP coverage is cheap and can be added via an endorsement to your insurance policy. However, Honda does include GAP in their contracts.
Take the guess work out of it. Call HFS directly and ask. Alternatively, since you’re a super supporter, look up a few of the posted HFS contracts and see if anyone uploaded the page with the one-pay section.
Do you think they’ll really know? Doubtful. Your suggestion of looking at the Honda contract is the best advice. It details everything and is the final authority regardless of what some Honda rep says.
Wow thanks for the thorough responses all. You guys are the best.
I do see that clause in my agreement - that I’d get a prorated amount back, uploaded the screenshot
Now seems to be an interesting part that I’d love folks opinion on. I can’t tell if the dealer actually processed this as a one pay lease. I uploaded my lease agreement here.
Rather than showing a Single Payment in Item 3B, the agreement shows a first payment of $17.64 followed by 35 payments of $0.49, with most of the money reflected as a capitalized cost reduction.
I’m now unsure whether my lease is actually being processed as Honda Financial’s official Single Payment Lease program, or whether it is instead structured as a standard monthly lease with a very large capitalized cost reduction. If it’s the latter, I’m concerned that the protections for the unused prepaid portion of a true Single Payment Lease may not apply in the event of a total loss.
I haven’t taken delivery yet, and I’m definitely going to be talking to the business manager before I do… not sure if I’m reading this wrong, or if it’s incompetence (they said they hardly ever do one pay leases), or if they are being shady for some reason
To be clear, did you sign the agreement already and are just waiting for delivery? What is the mystery car? I think the conversation may turn into what mystery vehicle you paid ~$600 effective for?
Yes, this appears to be a single pay. Whether or not it’s structured correctly and gets kicked back, I don’t know. e.g. I would expect 3a to be "n/a"s, and 3b to be filled in with the one-pay amount found in 6b3.
Haha so it’s a Prologue Touring but it’s not $600 effective. Below is a better look. I had $9750 in incentives that they applied as a down payment. Rest was 1-pay of $11.4k (36/12k). Then MA has an EV rebate for $3500, bringing to total down to about $8k, and effective of $222. Not bad for a $48k car. I was going to write up the entire deal once it was all settled.
Good to hear from your perspective it looks like a one pay lease… I am going to clarify that with the business manager before they register the car.
Better than not bad. Congrats, and enjoy the vehicle! However, even more puzzling why they structured the contract as such. Perhaps Honda doesn’t care if rebates are separated out (6b2).
I suspect if they try to fund this contract, Honda will kick it back (even from section 3 alone). In any case, as long as they collect the right amount DAS, they’ll handle getting the contract compliant.
This lease was structured very poorly… they screwed up and you can take that to the bank (literally)… The monthly depreciation charge is $0 b/c the Adj. Cap = RV. The monthly finance charge (i.e. rent charge) is $0.46. To wit…
All monthly payments must be equal. The first is 17.64 which makes no sense. I think they were trying to structure a one-pay. If so, the one-pay would be 36 x 0.46 = 16.56. Another indication is that the MF = .00001 which looks like a one-pay discounted money factor.
The one-pay should look like this…
6(A)(3) should be NA
6(A)(4) should be 17.60
6(B)(3) should be 21186.85 … this is your DAS, not the one-pay amount. The one-pay amount is 16.56.
7(i) Base Scheduled Payment should be 36 x 0.46 = 16.56
7(j) Sales/Use Tax should be 6.25% x 16.56 = 1.04
7(m) Total Payment = 17.60 which is close to 17.64 but not close enough.
Sections (2), (3), and (5) are inaccurate as well.
NOTE: The one-pay amount excludes tax and should be 16.56. That is the amount that would be used to determine the adjusted lease balance in the event of an early termination.
Also, I’d be interested in seeing the itemization of the capitalized amounts totaling 1356.50. They had to cap exactly this amount so that the adj cap does not fall below the RV triggering negative depreciation.
You are paying way too much cash up front. If cash is used as a cap reduction, you could lose most or all of it in the event the vehicle is stolen or totaled. Remember, a car is a depreciating asset and an expense, not an investment. Use the cash to invest in goods and services or other more meaningful and productive investments, particularly if you can earn the equivalent of an after-tax rate of return exceeding 2400 x MF or, 2400 x .00001 = .0240% which shouldn’t be too tough to do!
I would never favor this dealer with my business b/c they are incompetent and I would tell them so. This seems to be an epidemic in the American workplace. You have to hold them accountable and slam them privately. I couldn’t care less if they’re offended.
??? Let me know.
EDIT: There is a much more cost-effective way to structure this one-pay lease. No fees should be capped. Rebates/incentives should be used as a cap reduction requiring no cash from you toward the CCR.
Not sure how this works, but I know I totaled a lease a couple months after. Insurance paid the finance company what the total owed was and I actually got a check for 8k back bc it appraised over the buyout
It’s astounding how many people who work in the industry are clueless when it comes to leasing. I can see it if a lease was a rare once in a blue moon occurrence. But it’s about 25% of all car sales. And yet it’s treated as .0025%.
