Understanding a One-Pay Lease

A one-pay lease, also known as a single pay lease, is pretty much exactly how it sounds – you make just one payment during the entire lease.  This payment will be made at signing, and is a sizable lump sum that covers the full depreciation, rent charge, sales/use tax, and all other taxes and fees for the duration of the lease, so once it’s paid you won’t need to make any monthly payments.  Outside of the single payment rather than monthly payments, everything else around the lease will work basically the same as a more traditional lease:

  • The lessor will set the residual value, and at the end of the lease the lessee will have the option to purchase the vehicle at this price (potentially including a purchase option fee).
  • The lease term will be for a certain number of months, with a cap on total miles that can be driven during that time without additional fees being incurred.
  •  The sales tax will be based on the use of the car during the lease term, and not on the full purchase price (except for in those states where tax is paid on the full vehicle value)

Advantages of the One-Pay Lease

The One-pay lease is an option that saves dramatically on the rent charge component of the total lease payment made, and therefore reduces the total amount paid to get into the car you want to lease.  There are three main advantages to the one-pay lease:

  1. Since the amount the lessor pays the dealer is less, and the risk is nearly non-existent, the rent charge on a one-pay lease is very low (it’s not zero – we’ll explain that more below).
  2. Most lessors will report your current status (meaning all payments made in full and on-time) to the credit bureaus on a monthly basis – allowing you to improve a less than perfect credit score with perfect performance on your lease.
  3. You won’t have to worry about making any payments – you make one payment when you take delivery and then just enjoy driving your car for the entire lease term.  The dealer and/or lessor will be sure to remind you when the lease term is coming to an end.

Disadvantages of the One-Pay Lease

Just as there are three major advantages, a one-pay lease is still very uncommon, and isn’t a good option for everyone.  The two major disadvantages to a one-pay lease:

  1. You do need to make the entire payment upfront – and usually that is still tens of thousands of dollars – so if you don’t want to spend that much upfront, this isn’t the best option for you.
  2. There is some risk that if you total the car early on in the lease you won’t get much back after your insurance company pays the lessor.  This risk is similar to what you would incur by buying (either with cash or financing) a new car, but the risk doing a one-pay lease is substantial compared to leasing with no money down and GAP coverage included.

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Good Situations for Considering the One-Pay Lease

One situation where you may want to consider a one-pay lease would be that you have substantial equity in a car you want to trade-in, but you know that you want to lease your new car instead of buying it.  In this situation, you could do a traditional lease with substantial cap cost reduction, but then you still have the risk of losing much of that down payment in the case of a total loss event, while not gaining nearly as much of the rent charge savings.

Another situation where a one-pay lease may be your best option is that a blemished credit profile would lead to a very high money factor (or possibly not even qualifying for the lease), but you have the cash available to enter into a one-pay lease.  As described above, this may be a double bonus – you’ll save substantially on the rent charge component while also building a stronger credit profile.  The key is of course having access to the cash needed to enter into the lease in the first place.

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Rent Charge in a One-Pay Lease

It would be reasonable to expect that there would be no rent charge (interest expense) if you make one payment upfront.  But remember that while your single payment will pay the dealer (and others, like the government for taxes and fees) for part of the car, the lessor will pay the dealer for the rest of the car (the residual value).  Since the lessor won’t be able to collect that money until the end of the lease the lessor has effectively loaned the residual value to you and will collect interest on that amount.

The rent charge component is determined as (Net Cap Cost + Residual Value) * Money Factor.  In this case the Net Cap Cost is equal to the Residual Value – because you’re paying all the depreciation in advance.  So for the one-pay lease figuring out the rent charge included in the single payment is simplified as Residual Value * 2 * Money Factor .  And since the risk is almost nothing – regardless of your credit profile – the money factor should also be the lowest, or very close to it, that the lessor will offer.  So the rent charge won’t be zero, but it will be very low in a one-pay lease.  Use the calculator below to see how much savings you could have by doing a one-pay lease.

There’s an additional article we posted here that goes into more detail about alternative methods dealers sometimes use to calculate the single lease payment that doesn’t provide as much (or sometimes any) savings.  Basically, by calculating the lease using the standard formula to get to monthly payment, and then making the single payment this monthly payment multiplied by the lease term.  Watch out for this, and read the article for more detail and to understand the questions you should ask your dealer and how to ensure you get the most savings available.

Be sure to check out our Calculators page for more detail on determining the monthly lease payment, amount due at signing, and understanding how to get from APR to Money Factor and vice versa.