"It's something amazing.
"We led yesterday by 4 sec, but this is 50sec and I really need to concentrate to keep my head cool. I had butterflies in my stomach when I saw Jari-Matti."
Lappi needs only to safely negotiate the short final leg to claim a maiden WRC win.
Compatriot Teemu Suninen, another WRC rookie, held a stunning second place in his Ford - 49.1s behind Lappi.
Juho Hanninen is third in the second Toyota while Elfyn Evans is close behind in fourth.
Title contender Thierry Neuville moved up to sixth as he tries to make the most of championship leader Sebastien Ogier's rare failure.
Paddon, who made a mistake on the opening leg and broken the suspension on his Hyundai had the misfortune of collecting a stray rock that was left on the racing line around a blind corner. His i20 suffered another broken suspension and forced him out of the day.
"There was nothing we could do about our retirement today," he said. "We were going through a blind left, into a right, when all of a sudden I caught sight of a big football-sized rock in the road. In the split-second it took to see it, and I knew it would do damage. We could not avoid it and it broke the suspension arm.
"The real shame is the lack of mileage from this rally. We will be back out on Sunday to try and end this weekend on a high note."
The unavoidable incident continues a horror season for the Kiwi but he remains determined to turn it around.
"On a positive note, we have been competitive and will never give up as we work towards 2018," the 30-year-old said.
"I have never had a season like this before which is character building and will only make us stronger for the future."
Standings
Esapekka Lappi (Toyota)
Teemu Suninen (Ford) +49.1s
Juho Hanninen (Toyota) +53.4s
Elfyn Evans (Ford) +54.7s
Craig Breen (Citroen) +1:16.9s
Thierry Neuville (Hyundai) +1:31.6s
