If you were to buy a car and pay cash, you would save money on the interest that you would normally pay with a car loan. A single-payment car lease is similar, although there are some differences.
With a single-payment car lease, you will still need to pay interest on the residual value of the vehicle, but you won't have to pay interest on the depreciation.
The reason you will still pay some interest is because the leasing company has paid for the vehicle while you use it. They need to be compensated for the capital they put up.
So how much can you save if you prepay your lease? If you were leasing a $25,000 car for 36 months at 7% interest (.0029 money factor), your single-payment lease would cost $15,125.
That same lease paid over 36 months would total $16,992. Your total savings with a single-payment lease would be $1,867 or roughly $51 per month.
There are a couple of things you should be aware of when it comes to a single-payment lease.
First, some leasing companies calculate the single-payment by simply totaling all of your monthly payments into one. This method will not save you a dime, so you need to make sure they don't charge you interest for the depreciation.
You should know how to calculate a lease by hand to make sure they don't make this mistake.
The other thing you should be aware of is the possible loss of money due to a car accident or if your vehicle gets stolen. If this were to happen, the insurance company would pay only the current market value of the vehicle, not the amount you paid up front.
In a normal lease, you would just stop paying your monthly lease payment and the leasing company would be responsible for the loss (although GAP insurance would have them covered), but since you have already put up the cash, you stand to lose a good portion of that.
The risk goes down the longer you progress into the lease, but if you were to have your car stolen or wrecked in the beginning, it could result in a large loss.
It's good to be aware of these pitfalls before you decide whether or not a single-payment lease is right for you.