Fair enough, letting insurance go is not a great deal.
Can any experts comment on paying MF on a single pay lease when not borrowing money?
This principle is what irritates me about 1 pay. Youâre paying interest on your downpayment! Yes it lowers the rate so it does have an advantage, but it seems that it should be illegal for leasing companies to charge interest at all! Imagine if your credit card company tried to do this⌠â12% interest for carrying a balance, but if you pay it off right away we will only charge you 4% interestâŚâ There would be some pretty upset consumers.
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Maybe Iâm misunderstanding what you guys are arguing about, but doing one-pay doesnât mean you are not borrowing any money during the entire lease. The one-pay is only covering your payments, you still are borrowing the residual value of the car during the lease.
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Jon, you are not borrowing the residual value. That is he amount the car is worth after the lease and can be purchased for if you chose to do so.
The rent charge for a lease isnât only for the depreciated value though. You are still borrowing the entire amount up to the sales price.
How are you borrowing money? I may be wrong but a lease pays the amount from sales price to residual value. If you do single pay, whatâs the borrowing?
You are driving around the full value of the car, and if itâs stolen/totaled your insurance pays out that amount. However, youâre only financing the capitalized cost of the lease - the difference between the selling price (less any downpayment, incentives, etc) and the residual value.
On a standard lease any amount you pay as a downpayment/cap cost reduction is not subject to financing, right? Itâs generally accepted that you donât want to put money down on a lease, even though you avoid ANY interest on it. A one pay lease is just a 100% downpayment yet they charge you interest on it, offering only a reduced rate.
It seems that this forum has accepted one pay as a decent option, which I find interesting because of the principle above. It usually is tossed around with regard to very low cost leases where the absolute minimum cost is the goal. For those of you doing One Pays, Iâm curious to hear why you chose to accept it!
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For a lease, even though you are only paying the depreciation, the bank still needs to pay the dealership the entire sales price of the vehicle. Say sales price is $20k and depreciation is $5k, the bank still needs to charge interest for the remaining $15k.
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You are borrowing average value of the car over the lease term. When you do single pay this average value becomes equal to residual value because you are paying anything more than that upfront.
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Are you sure thatâs the case? When leasing, the bank still needs to pay the dealership the sales price of the car, not just this amount.
Thus, you arenât borrowing money!
@Penny001 So when you move in to a house and leave it a year later when itâs value has increased you should be paid by the landlord.
You borrow 30K and return 30K, 3 years later. Should you pay interest on that? The same goes with your lease execpt the first 30K is the amount you borrow first to get the car at lease inception and the second one is the RV of the car when you return it.
IF you borrow money, you should repay it plus interest. That is the premise for a loan!!!
The question is as follows:
Should you repay a MF on a single pay lease? IF the reason is that the bank has to pay the dealer for the full value (including residual value) as some have mentioned, then guess I could see that. However, why is the MF still based off of just lease payment amount and not the full MSRP or Cap Cost?
It doesnât make sense that there is a MF for a single pay lease! The buyer is paying the full value of the lease or loan and then returning the car for a set value.
Another way to put it⌠what if a dealer added interest to a person paying cash for an outright purchase? Doesnât make sense!
When you say MF, Iâm assuming you mean rent charge? Rent charge = (Net Capitalized Cost + Residual) Ă MF.
Correct! So, when you do a single pay leas you are basically lowering the rate paid on the residual value. Is that correct?
Not exactly. In one-pay or not, the net cap cost and the RV donât change. Only the MF changes. So you are saving = (original MF - onepay MF) * (net cap cost + RV)
Thanks! So, I understand he math and it further proves that a single pay is paying interest on he residual amount AND depreciated amount. Correct?
Turns out google doesnât have a strong answer on what the probability of having your car totaled or stolen is.
Here are some statistics that shine some light on that probability. Letâs start with your leased (new) car being totaled.
There were 5,687,000 crashes in 2013, according to the NHTSA. The total population was around 315 million at the time. So your probability of being in a crash is 1.8% (in a rough estimate, not taking into account miles driven and more granular stuff).
I couldnât find any info on how many of those crashes resulted in the car being totaled. But consider this information on cars that have been in accidents and are then either repaired or totaled. When new cars get in accidents, only 7% of those crashed cars are totaled.
Comparison by CCC of total loss frequency by vehicle age shows total loss frequency grows with the age of the vehicle. For example, the average repair cost for a one year old vehicle is about $3,300, and yet the average vehicle value of one year old vehicles was over $25,000. Over three-quarters of one year old vehicles sustain damage that results in a repair cost that is between zero and thirty percent of the loss vehicleâs value; with less than seven percent of one year old vehicles overall that are deemed total loss
⌠we are just missing @chrisgo There are a few people here that are getting close to honorary doctorates.
One-pay leasing is an interesting topic but my experience with them at the captive I was at was minimal. The only time I saw them was on 12mo leases and these were usually for sports teams or some sort of contest where the prize was a free 1 year lease on a car. The 12mo RVs were just set conservatively off the 24mo 15k RV (+4pts) so it was never a great deal. I know we offered them on 24-60 mo terms but I was not involved with the MF decisions on the program.