1

I am planning to do a one price lease to save money, but I am concerned that if the car gets totaled early due to an accident or gets stolen, I would lose a lot of money. Am I right? Is this generally a bad idea due to the risks I have outlined?

Please note that even though I can afford to pay the entire lease upfront, I am unwilling to buy for several personal reasons.

3
  • 1
    Could you explain exactly what you mean by a "one price lease"? When I search on the phrase, the only relevant hit seems to be this thread :-( – jamesqf May 5 '20 at 16:50
  • Instead of paying the depreciation (and interest on the full amount) over length of the lease, you pay one amount that covers interest and depreciation for the period. Typically these are cheaper because the finance company is willing to take a lesser interest rate since the risk is less. Here is another link: cartelligent.com/blog/when-does-a-one-pay-lease-make-sense – user1113782 May 5 '20 at 20:06
  • So you're just paying the lease up front, instead of making monthly payments. But that could be more expensive. Say you can get 5% on investments. Then paying the link example's $26K up front means you've lost 3 years investment growth, or a bit over $4K. – jamesqf May 7 '20 at 3:22
5

If you are looking to save money on car ownership, leasing is the most ineffective way to go about it. I would imagine one price leasing is even more inefficient than the typical monthly scheme. The specific question you are asking would be highly dependent on the leasing contract, so it is impossible to answer. In order to make it equitable for the buyer, there should be some provision for an early lease termination regardless of the reason.

Presumably you have the cash to pay an upfront lease, so you have the cast to buy a car outright. Buying a gently used 3 year old (at least) car with cash is the best way to save money on car ownership.

The biggest cost in car ownership is depreciation. With leasing, you are not only paying the depreciation but also financing it. With up front leasing, you are probably ending up with an even worse deal. By buying a three year old car, much of the depreciation has been already paid, and if you own that car a long time, the depreciation per month becomes rather negligible.

If you are really wanting to save money, buy an even older car. Almost all of the depreciation would be paid, the cost will be low, sales taxes and licensing fees would be low. I like to aim for cars in the 4k range. Even with repairs these cars typically have a far lower cost of ownership then buying nearly new.

It all depends on how much you hate money. If you really hate money, then lease.

1
  • 1
    Thank you. I believe you are right. I will look into buying a certified pre owned outright. – user1113782 May 4 '20 at 18:10
1

Coverage from 'if the car gets totaled early due to an accident or gets stolen' should be handled by your insurance. Seems to me that you need to make sure that your insurance policy properly accounts for the all-upfront-lease and some equivalent of gap coverage (which comes from when you enter a payment plan to purchase a car, but due to rapid depreciation of very young cars and the higher proportion of interest on early loan payments, the loan principle can be higher than the net value of the car, the gap coverage protects from that) for up-front-leases. These sound like questions for your insurance agent, all in all.

2
  • Here is what I am asking: say I pay $18000 for the lease over 3 years on a $40K car. Next day when the car is totaled, insurance company sends a check for $35K to the finance company (what the car is worth at that time, $5K depreciation as soon as you leave the lot). What happens to me? Is my 18K gone? – user1113782 May 5 '20 at 20:08
  • @user1113782 and you ought to have a replacement car at approximately the same state the previous one was in. That's the point of insurance. Probably with the same remaining term on the lease. But these are the details that you need to investigate between the dealer, your insurance agent, and you. – R. Hamilton May 6 '20 at 13:56

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.