Payment in Advance

Some services require that payments are made at the beginning of each billing period rather than at its end. Advance payment (or payment in advance) is often used for pensions, savings accounts, savings plans, loans and leases.

Example 1: If you engaged a savings plan which paid out 2% annual dividends in advance, you would receive the yields on your savings up front at the beginning of every year.

Example 2: You take on an auto lease that requires monthly payments in advance. The due date for your first monthly payment will fall at the beginning of your first month.

Contrary to payment in arrears, prepayment lets the lease provider receive payments earlier and your debt as a leaser goes down steadily. This has a positive effect on interest charges: A lease with monthly payments in advance is cheaper than one which allows payment at the end of the month.

Car leases in Switzerland almost always require monthly prepayment.

More information:
Payment in arrears explained
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Expert Benjamin Manz
Benjamin Manz is CEO of and an independent expert on banking and finance.