Help me understand why monthly payments are better than a one-pay lease?

Ask the Hackrs
1

Okay, so the general gist I get is that MF (which I read as interest rate) is low enough that I should just hold onto my lump sum and invest it while paying for the lease over the 36 months.

However, when I run the numbers on the finance charge, it seems like it’s way more than I’ll get from investing.

Could anyone point out where I’ve gone wrong in this math? Or what I’m generally not getting about this all…

Example

MSRP: 23,675
Sales Price: 21,000
Residual Value: 14,915
RV: 63%
MF: 0.00108

Base Monthly Payment: (21000-14,915)/36 = $169.02
Monthly Finance Charge: (21000+14,915)*0.00108 = $38.79

Total Monthly Payment: $207.81

Total Amount “Borrowed”: 169.02*36 = $6,084.72

Total Amount Spent Over 36 Months: 207.81*36 = $7,481.16

Total Amount Paid in “Interest”: $1,396.44

$1396.44 / $6084.72 = 23%

So, if I invested the $6084… I’d need to beat a 23% return in order for leasing to be a better deal than a one-pay.

Also, this is all based on the assumption that an up-front one-pay avoids the finance charge… is that even true?

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2

  1. I think your math is wrong, but its actually irrelevant

  2. Its not about a better return, its about not risking your capital

Imagine you do a one pay lease, and you drive off the lot, get t-boned and your car is totaled. You’ll get $0 back from the insurance company, it will all go to the finance company and you’ll be out your lump sum payment.

Now imagine you do a zero down lease in the same situation. You still get $0 back from the insurance company, but you are out nothing. If down the road your car gets totalled, you are again not really out anything as you were basically renting the car and when it got totalled, your rent ended, but you got what you paid for.

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3

A single pay lease if terminated early by total loss of vehicle will be refunded pro-rated for the months you did not use. There is no risk to a single pay lease.

Putting money down on lease payments is where you can lose your down payment if the car is totaled.

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4

One pay doesn’t eliminate interest. It only lowers it.

5

Correct it depends upon the spread between the monthly MF and the One Pay MF. If it is large enough, then can save you some money.

6

When you lease you are paying interest on the net cap cost AND the residual. It’s not just interest paid on the total of the payments.

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7

A single pay lease if terminated early by total loss of vehicle will be refunded pro-rated for the months you did not use. There is no risk to a single pay lease.

Putting money down on lease payments is where you can lose your down payment if the car is totaled.

really? everything I’ve read until now says otherwise

8
9

A single pay is different entirely than putting cash down.

10

ah, ok. that’s a good point. cash down is “equity” you’d lose.

11

Just spotted in the Honda leasing contract:

Total Loss: If the Vehicle is lost, stolen, destroyed or determined by Lessor to be unsuitable for user, the Vehicle is a Total Loss and I am in default and I will owe the Early Termination Liability set froth in Section 27, less the Turn-in fee.

I had to jump around and read several more paragraphs… but it sounds like you wouldn’t owe any more monthly payments due to the way they calculate realized value.

However, it’s not really clear (at least the parts) I read, about what happens when your adjusted lease balance is lower than realized value… it makes no mention of a refund.

12

If anyone was curious, this is what one-pay does to MF for Honda (courtesy of some folks on Edmunds):

.00108 --> .00028
.00080 --> .00001

Seems like it will save about $1000 in my case.

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13

Hi yeah
My one pay lease contract says same thing , just by common sense , I think they should refund you for the unused month lease fee. For Honda one pay lease , My understanding is that Adjusted lease balance (ALB) is the money you owe them (Which is increased by month based on how many month you use) and the realized value(RV) is the money they owe you (same as market value that your car insurance will pay them when total
Lost happen) . Gap waiver kicks in when RV < ALB, which I don’t think it can happen during 3 years of lease, that is why Honda is generous to offer free GAP waiver since they are confident of their car market value. When you comparing one pay lease v.s pay lease month-to-month , for RV is same since it is market price, ALB is actually same too , ALB = lease-end value + months you used , so the calculation is same . In sum, no difference for Honda one pay lease or month-to-month pay lease when total loss happen