So, what is a pre-paid lease? I can tell you that my last three personal cars have been bought (leased) this way.
Pre-paid leases are sometimes called single-payment leases too, and it is primarily for people who have available cash. This plan works like a regular lease, but you make all the payments up front in a lump sum, except the residual or lease-end value, and often you save a substantial sum of money on interest charges since you are paying in advance.
As in a regular lease, you still have to adhere to the rules of wear & tear if you are going to walk away. You have to stay within the mileage limits since at the end of the lease, you may end up turning the car back and walking away if there is no equity. If there is equity in the car at the end of the lease, you can trade it in or purchase it, such as a regular lease.
If you are in the position of having enough cash to pre-pay your lease, you eliminate the hassles of making monthly payments. Another advantage is that most captive lease companies offer GAP insurance coverage on their pre-paid leases, which gives you another layer of protection.
Like regular leases, you can choose the mileage you want. 15,000 miles per year is standard, but you can go lower or higher as needed, but this will have an effect on the amount of the upfront payment.
Normally, within 3 months of the end of your pre-paid lease, you will be contacted to find out what your intentions are. This is a good time to get your vehicle appraised to see what the true value of it is to help you make a decision on what to do.
Anyone interested in a pre-paid lease should also look at a normal lease to see how it compares, and to make sure that paying all the payments up front results in a savings for you. Given that your money sitting in the bank now pays a decent return, pre-paying your lease may or may not end up in savings for you.
In summary, the advantages to doing a pre-paid lease are 1). A much lower cash outlay than paying cash for the car, 2). You avoid the hassles of making a monthly payment, and 3). You have a lot of options at the end of the lease, like purchasing the car, trading it, or walking away and getting something new.
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