Downsides to one pay lease?

I’ve seen some people post on here that they’ve saved some money doing a one pay lease. Can someone share any downsides to consider when doing this (obviously other than losing the liquidity by parting with a large chunk of cash)

Thank you in advance.

At the time I did my lease, the MF was lower with the max of 7 MSDs than a one-pay, so I’m stringing out the payments.

This was BMWFS, and since then they’ve changed the MSD program, so I don’t know if this is still true.

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Which car, each one pay is slightly different.

The downside of a down payment is that you lose it if the car is totaled.

Is one pay lease basically a “down payment” for the whole thing, meaning that you lose everything if the car is totaled?

No, it’s not. Do a search on here as we have a few threads that on the subject. Yes, Acq Fee, Cap Cost reduction amongst others would be lost. However your monthly Depr & Fin charges would be pro - rated & returned to you.

Many times the mf differential between one - pay and standard is enough to overcome the risk. In my personal case, it was .00265 vs .00135 with TFS…I did a one pay and was fine with the risk.

Keep in mind as well, this assumes the vehicle is totaled and is also your fault…if it isn’t your fault perhaps your neck & back are also hurting should the at fault party not make you whole.

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Can you explain this in a bit more depth?

How much more in depth can he explain it? That was a great explanation

This varies and you need to check with the leasing bank on this. I’ve done several One Pay leases through GM Financial and this is not the case. You will receive the unused portion of the lease back in the event of a total loss. Other lenders may vary but in general you are making a trade to allow them to hold that money up front (and invest it as they see fit) in exchange for a lower interest rate on your end. A One Pay lease program should be treated differently than Cap Cost Reduction. If the lender in question makes no such distinction you are better off avoiding going that route.

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This is the part I was seeking elaboration on. Not familiar with how who’s at fault would have correlation to your lease terms.

I’m a huge proponent of a one pay lease and have done many in the 15 years of leasing.

However (and I know there are some guys here that are great with numbers so I’d welcome their input), I’d venture to guess that in this economic climate with out of control inflation, you’re better off locking in a monthly payment rather than doing a one pay.

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One pay leasing was always a close call and I have done it before. But with even historically average post Bretton Woods inflation levels, one pay leases don’t make sense on most leases. I am less concerned about medium-term inflation than most but even with that belief I didn’t even consider a one-pay lease on my recent lease and took the longest term offered at the promotional 1.9% APR on a recent vehicle purchase.

You’re locked in either way 🤷🏽

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Value of money decreases with inflation. You lose purchasing power by paying up front.

But the theoretical loss of purchasing power would only really matter if you were hard up for $ and would’ve used the funds for the one pay on something else earlier in the lease term, right?

Didn’t someone on a diff thread say they spoke to an agent at GMF and that this is no longer the case.

Should the at-fault party insurance adjuster or your own insurance adjuster should you decide to file a claim on your own insurance and have them subrogate the claim, not offer to make you financially whole is where I was going with this.

Either adjuster, you make the property damage claim, maybe negotiate to making you financially whole, then in the case the vehicle was totaled and the at-fault party was not you…if the property portion of the policy does not make you whole, nothing is going to stop you from making a Bodily Injury claim to get you to the amount that you need to be at so that you can be made financially whole. That was the premise of what I was trying to say. It doesn’t correlate to your lease terms, however it does correlate to the outcome of the insurance claim and can be a way to get you financially to where you need to be.

Hopefully in these cases, neither party is injured or has to receive care at a hospital.

In One-Pay leases take a look at the cost savings between one-pay and standard lease terms, then reconcile it with your risk / reward tolerance profile, and make a determination as to which way to proceed. Does the savings justify the risk?

I believe what you’re alluding to is the conversation regarding whether or not the money is best used working in other ways (eg. investing) rather than being paid up front. This conversation regularly comes up, and it’s really dependent on the specific lease program, and how much can be saved by doing a one pay rather than traditional lease.

What I’m referring to is strictly in regard to todays excessive inflation, and the expectation of that continuing. The value of the dollar decreases during inflation, so $600 in 24 months is worth less than $600 today. Operating under this premise, the higher the inflation, the less attractive a one pay lease becomes.

True true true…

For me, the OPs start to make sense when the simple return is just overwhelmingly greater than a competitive (nearly risk free) investment. With my Wrangler leases, the simple annual return came out to 7%. That is many multiples of what I have access to getting with a comparable extremely low risk investment (aka money market, etc) that the OP lease becomes easy to rationalize.

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Yes and no.

What I mean is that, b/c the amount you pay has already been defined up front regardless of conventional lease vs. one pay and since monthly payments are equal amounts interest + “principal,” the inflation doesn’t functionally make that much of a difference.

Yes, the value of the dollar decreases during inflation, but what you were paying was already strictly defined earlier and cannot be modified. But I don’t have finance background, so…

6% inflation certainly makes a difference.

Here’s an example, albeit much more extreme, using a mortgage- say you take out a 30 year loan with a $1000/mo payment. Do you think the $1000 that you’re spending today will be equivalent to a $1000 twenty or thirty years from now? Of course it won’t, and that’s due to gradual inflation.

Point being that significant inflation over the next few years can offset the benefit of a one pay lease.

That, of course, assumes that wages grow to match inflation

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