mjsbenz

I will be picking up my new car on Tuesday, May 29th. I want to have a better understand of the savings to be achieved if I decide to use the "one pay" option. I do not have that number yet.

Can someone enlighten me with the details of how this program works. I understand that there is a reduction in the money factor (current MF on 33 month lease is .00026). What would that reduction be? And an added benefit is that interest is only charged on the residual amount.

Any thoughts would be be helpful.

Thanks.

ghstudio

The biggest problem with onepay is that if your car is totaled or stolen, you will not get the benefit of gap insurance.....you will pay the full "on the books" price of the car, even though your insurance will pay less than that....and your "refund" from Mercedes will only be the difference in what you paid and what their book value was at the time of the loss.

Normally, your insurance pays for the car...and if the car's value is more than that amount, Mercedes gap insurance pays the difference.

mjsbenz

I need to check into the risk you have mentioned. A friend of mine did a one pay on a BMW lease and he explained that there is no risk on a total loss situation as one pay is not a down payment which reduces the financed amount. Rather, a one pay is a prepayment and each month, I would get a statement showing the amount of one pay prepayment balance less the (reduced) current month lease payment to be applied to that balance. If a total loss would occur, the note for the financed amount is separate from the remaining balance of the prepaid one pay balance and that amount would be returned to me.

More to learn.

Thanks

RJC

Used to be about 5%

ttoE550

The economics of this is simple, but the implementation is tough. Your choice is giving them a wad of money today vs spreading it over time. If you give them a wad of money today, mb can use it to loan to others. They make money off of that since they charge others interest. So they give you credit, which appears to be a savings to you. Time value of money 101. You have to compare the implied interest rate of the annuity (payments over time) vs the one-time payment to what you could achieve by (1) borrowing the money to make the one-time payment or (2) investing the money not spent in the annuity. This is hugely dependent on your personal financial situation.

But the matter is complicated by all sorts of things. You really have to sit down with the numbers and think. A simple example is a reduced form of my insurance payments. My insurance company, for example, charges $1200 per year. I can pay $1200, or monthly with a 2% convenience charge on the outstanding amount. So the first month I pay $124, the second $122, etc. so for two months I've paid $46 dollars in convenience charges or nearly 4% of the average balance. Without calculating, the implied interest is probably in the 15% range or more. It is clearly better for me to pay the full $1200 upfront absent other circumstances.

This is an extreme example. But really all you need to do is look at the numbers and the implied interest rates and compare them to the benefits of having money in hand to extending mb a de facto loan. My guess is that it is better to make payments, but you'll need to judge for yourself. Good luck

Edit. I do not pretend to know anything about the legal risks raised by ghstudio.

mjsbenz

Two areas that need to be explored.

(1) Does one-pay cause any financial risk if the car is totaled? I think the answer is no as the payoff of the note held by MB Financial is NOT reduced by the one-pay as such prepayment is treated as a prepayment that is returned if such an event would occur.

(2) What is the return on my money if I one-pay? I have done multiple security deposits with BMW and because of the MF reduction of .00049 (assuming max of 7 MSDs), the return on my money held by BMW is over 12% annually from the reduced montly lease payment. Yes...that is why it is a great deal. With Mercedes, MSDs only can be used if the MF is a standard (high) rate. The E350 4matic MF is .000126, or about 3%. No can do!

If the ROI is only 3-5%, it surely is less attractive than what I am used to with MSDs.

One added wrinkle with one pay. A week ago, MB Financial annouced a 6 month pull ahead program whereby 6 payments are waived on your old lease. I am not sure how that would apply if the lease is a one pay.

Am I over thinking this program??