I guess my question is, what is the functional importance of this difference?
If anything, using the mortgage situation, doesn’t it mean that you are getting more for your $ since you’re functionally spending LESS, while the asset has appreciated?
Aside from cash flow (which you said is not your point), what difference does it make if you spent $15K now vs. $15K over 3 yrs, if you are contractually obligated to spend $15K regardless?
I’ve already noted I basically agree with you but it’s probably not worth thinking about too much. You are trying to guess what the inflation rate is going to be in a year or two. Smarter minds than you and me are trying to figure this out from Washington to Frankfurt. If you knew the inflation rate was gonna be 6%+ for a few years you wouldn’t be worried about a few hundred dollars, you would be buying gold and oil futures.
Here’s a hypothetical based on my one pay. I paid $27,013 for a single pay on a Macan in Nov. 2018. My payoff amount or account balance at the time of lease signing was $28,120. MSRP was $56,500; Selling price was about 50,500. Let’s say (hypothetically) the car was stolen two weeks after lease signing. My insurance company estimated the car’s value at 48K and issued a check to PFS for that amount. PFS would have kept $28,120 and issued me a check for $19,880. I would have paid $7,133 to drive a Macan for two weeks. Had I done a traditional lease with zero drive-off, then gap insurance would cover difference. As with the purchase of new vehicles, there is some risk with single pays. However, I would argue that our currently inflated market helps minimize the risk providing you aren’t paying over sticker. If your selling price is above MSRP, you may want to reconsider.
This is not how a one pay works. The current payoff of the vehicle is adjusted each month, based on a pro-rated amount of the one pay value. Gap still applies to a one-pay.
Correct, which is why making monthly payments (as opposed to a single pay) is beneficial.
Because the value of $15k changes over time. Better to spend as much of it later on when the value of the money is lower.
You are the trusted hacker and are far better informed.You are right that my payoff amount increased by about $175 every month. However, I am certain what I wrote was true regarding my specific single pay. I consulted an attorney, PFS, the dealership… In the event of a total loss, I would receive the difference between the payoff amount and insurance payout. In Dec 2018, my payoff amount was $28120 according to my PFS statement.
I am also fairly certain that gap insurance is tricky when it comes to PFS single pays. This is something I found to be very misleading. Since depreciation is prepaid, it was highly unlikely I would confront a situation where gap “kicks in.” Gap insurance was a moot point because prepaying eliminated the possibility that I would ever owe more than the insurance payout in the event of a total loss. I can’t speak for all single pays. I do happen to know the details of the one I signed.
Yes, that principle is generally true - although another factor to take into consideration is the discount on interest offered by a bank via one-pay, which in theory helps to offset some of the “lost earning” potential of the money spent today as opposed to monthly.
There’s also another very small but possibly impactful aspect: a monthly lease will probably appear on one’s credit report (and could affect DTI ratio for a loan/mortgage), whereas a one-pay should show up as a loan with a $0 balance.
I think what you are missing here is that a One Pay is not a “prepay”. It’s essentially putting money in Escrow where the lender pulls payments each month. You are getting a favorable rate because you have reduced default risk for the lender. Hence there is no downside other than the inflation angle. That is how I understand it.
It is possible that Porsche does things differently than everyone else, but that is not the normal way that one pays are handled. Depreciation is not prepaid. The one pay is held in an account and is pulled from monthly to apply to the depreciation/rent charge.
Correct, taxes and fees are fully earned, depreciation and rent are essentially escrowed.
People really need to stop using any form of the word “escrow” to describe one-pay leases.
The biggest issue for me with one pay is that it is usually more difficult to get out of the lease early.
I could see that for lease transfers, but beyond that?
Normally don’t comment, and just absorb the lessons on here. But that 30 year example in reference to a 3 year lease made my day!
I suspect that Porsche does do things differently. It took three weeks, several calls to PFS, a GM, a finance manager, and an attorney to answer the “what happens in the event of a total loss” question. My understanding was the unused rent was held in escrow account and applied monthly.
Once again, I know very little about leasing but I am familiar with the one and only lease I’ve ever signed. Perhaps, too familiar - I now make a car loan payment. I appreciate this forum and your feedback a great deal.
Do you by chance have a copy of your contract? I’d be curious to see what it says.
When people talk about an escrow account, they aren’t being literal. There is no escrow account the payment sits in. It’s just bookkept in a way that behaves similar to if it was held in a separate account, so it is often describe that way as an over-simplification.
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