A one-pay lease is exactly what it sounds like: instead of 36 monthly payments, you make one payment at the start that covers the entire lease. At the end, you return the car or buy it, as with any other lease.

It suits a particular kind of buyer. For them it can be the cheapest way to lease.

How it works

The lease is calculated the usual way: depreciation plus a finance charge, based on the capitalized cost, residual value and money factor. See how lease payments are calculated for the formula.

The difference is the money factor. Because the lender has all its money on day one, it is taking far less risk, and many lenders reflect that with a lower money factor on one-pay leases. Lower rate, lower finance charge, lower total cost.

You still pay the usual fees, taxes and registration at the start.

What it saves

The saving comes almost entirely from the lower finance charge, and it depends on how much lower the lender goes.

A rough illustration: a $40,000 capitalized cost and a $25,000 residual, so $15,000 of depreciation over 36 months. The finance charge is the money factor applied to the capitalized cost plus the residual, each month.

  • Monthly lease, money factor 0.00250 (about 6% APR): $65,000 x 0.00250 x 36 = roughly $5,850 in finance charges
  • One-pay lease, money factor 0.00150 (about 3.6% APR): $65,000 x 0.00150 x 36 = roughly $3,510

A saving of around $2,300, in exchange for paying about $18,500 up front, before taxes and fees. Some lenders calculate one-pay finance charges slightly differently, so treat this as a sense of scale rather than a quote.

Whether that is a good trade depends on what else that money could be doing. If it would otherwise sit in a savings account earning less than the rate you are saving, one-pay wins. If you could earn more on it, or need it available, monthly payments may be better.

The risk people overlook

The biggest risk is a total loss. If the car is stolen or written off early in the lease, you have prepaid for months you will not use.

What happens next depends on the lender and your gap coverage. Some one-pay leases refund the unused portion, some credit it against what is owed, and some return little or nothing. Read this part of the contract before you sign, and make sure your insurance and gap coverage protect the prepaid amount. See what happens if a leased car is totaled.

A down payment on a normal lease carries a similar risk, which is why we generally advise keeping money down small. A one-pay lease is that risk at full size.

Other things to know

  • Not every lender offers it. Availability varies by brand and changes over time.
  • Taxes still apply. In states that tax each payment, you may pay the whole lease's tax at the start. See sales tax on a car lease.
  • End of lease rules are the same. Mileage limits, wear and tear and disposition fees all still apply.
  • Early termination can be messy. Ending a one-pay lease early does not always return the unused money cleanly.

Who it suits

  • Buyers with spare cash earning less than the rate they would save.
  • Business owners who want the expense recognised up front. Talk to your accountant about the tax treatment. See business car lease tax deductions.
  • Anyone who simply dislikes monthly bills.

Who it does not suit

  • Anyone who would need to drain savings to do it.
  • Buyers who cannot confirm how a total loss is handled on the contract.

The short version

A one-pay lease prepays the whole lease at a lower money factor, which can save a meaningful amount. The trade is tying up a large sum and carrying more risk if the car is written off.

If you want a one-pay and a monthly quote on the same car to compare, ask us.