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Trade-in My Lease or Buy It?

In 2010 I leased a basic model Prius for $351 per month for 36 months (total paid at end of lease term: $12,636). The lease payoff amount is $17,539. Ultimately I’d like to purchase and not lease my next vehicle and I’m not sure whether to buy the current car I’m in, trade it in for a new car or buy a certified used. I realize if I keep this car I’d be paying more than the value of the car, but ultimately less than the price of a new or possibly used hybrid, which would cost between $20k - $25k. The next car I purchase, whether I keep this one or get something else, I’d like to own it for at least 10 years. Looking for the most practical and financial decision for owning a hybrid or fuel efficient vehicle.

Thanks for your help.

At that lease payoff amount I would think new car purchase, they are great vehicles but in your consideration think of the 10 year battery warranty and 2 to 3k replacement battery cost.

You don’t say if the current Prius is a car you would like to keep for 10 years or no. If you like this car and have taken care of it, then it does not make sense to buy some other used CPO. You should price your car at the end of the lease and see if the price would be less than your payoff and then maybe negotiate. Since the Prius usually holds its value, I doubt that is going to be the case. You car has already depreciated a lot in the 1st 3 years, so buying it makes more financial sense than buying a new car.

The payoff price seems high. How many miles on the car?

I dunno, you pretty much paid for it once through the lease, and would pay for it twice with the pay off. I think I’d just start fresh after the lease unless this is some super fantastic car and pay off is much less than retail. Ten years might be a little long though to keep the next one.

If you like it and the payoff is about the right price I’d buy it, no problem. The Prius is one of the most reliable cars out there.

Here’s the thing-the $12k you paid on the lease is lost whether you buy this car or not. The question you need to ask is “Would I buy a 3 yr old Prius for 17k?”

@jtsanders- The mileage is 18,012. Thanks everyone for the input.

Cole’s Law gave you the best answer…

Cole’s Law has good input, but I’d also encourage you to ask yourself if a Prius is really worth it.

For the same age and mileage, you should be able to pick up a nicely equipped compact sedan for about $4,250 less (pricing both Focus and Corolla). I’d then do a simple net present value (or NPV) calculation around the cash flows, where you save $x in gas per year with a discount rate of y%, expecting the cash flows to last z years with the upfront cost of $4,250. I’d use a target of 12 years for those cash flows, given an average vehicle life of about 15 years, assume no difference in residual values (cars that old aren’t worth much of anything), and I like a discount rate of 3-4% (what you can still get for corporate bonds on the low end of investment grade). With your low usage, you’re likely to only save $338 a year or so in gas (assuming 29 vs. 49 mpg and $4/gal, which should be an aggressive assumption of savings).

That means your cash flows are:

year 0: -$4250
year 1: $338
year 2: $338
year 3: $338

Using a 4% discount rate, you get an NPV of -$1,087. Using 3%, that’s -$894.82.

In other words, you really aren’t saving money with a Prius. You’d be financially better off buying a conventional compact sedan. Now, if the good feelings you get from using less gas, regardless of cost, are worth at least $1,000 to you (which really isn’t that bad of a cost), then by all means buy a Prius. Happiness is worth something, too.

Eraser is right but I’d actually live with that extra cost for 2 reasons. Knowing your car is better than buying an unknown used car, and knowing you’re protected against gas price spikes is worth something extra to me.

When I leased vehicles I always swapped them out for a newer model. As long as you don’t mind continually paying every month I think it is a good idea to always have a new car. You could swap it out every year.

That’s a very expensive way to have a car…

I concur…VERY VERY expensive way to have a car. Buying new or leasing every couple of years is a financial waste. It’s GREAT for status image…but financially wasteful.

@texases -

And there’s another reason to ignore the cost. I purposely chose a price on the high end of what I’ve ever paid for gas, but it could possibly go higher. That security might be worth something to some people, just like driving a car that is more enjoyable to drive than a Prius might be worth something to others. $1000 NPV is a small price to pay if you’re keeping a vehicle a long time and would enjoy the car more.

Of course, if you live in St. Cloud, MN, you could always just go to First Fuel gas stations and lock in your price now as another option for protection against spikes. For $4.079 per gallon, you could buy enough gas to last your vehicle’s life. However, the upfront cost would basically change the NPV to -$120 or so and make it a wash between the vehicles. I’d argue in that case you’d be better off not hedging, and taking the risk. At 4% discount rates, the NPV between a Prius and a Focus becomes a wash in the OP’s driving habits if gas hits $5.37 per gallon. The futures market is currently projecting $3-3.25 for most of the next 3 years, so I’d wager $5.37 (sustained) is quite a few years off. I could be wrong, though. :slight_smile:

Yeah it is an expense but I had a viable business at the time and it basically provided a deduction. But of course the Status Symbol aspect was great. Neighbors just drooled.

Now I don’t want any more new cars. I had 3 showroom purchases years ago but the depreciation and the payments are just unattractive. Sticking with used and CPO.

what was the cost of a base model Prius when you first leased it? Because if you buy this one after your lease is up, you’re paying over 30 grand for it, not counting interest charges. How long will you be financing the remaining purchase amount? 5 years? 6 years? That’d be 7 or 8 years you’ll be paying for the car. If you keep it 10 years, then that’s only 2 or 3 years you’re not paying for the car.

But past payments don’t matter. All matters is whether buying the Prius is reasonable compared to spending that money on some other car.

Yeah but, assumming it’d be financed for another three years, that’s six years before its paid for reasonably. If you’re gonna spend another three years paying for it, might as well have something new to begin with instead of three years old already. And, 6-8 year old cars start to have problems, need repairs, and are not under warranty.

So you’re concerned that the OP would pay for 3 more years but would steer them towards something new that would probably take 5-6 years to pay off? That makes no sense to me… Modern cars aren’t likely to have many (if any) problems at just 6-8 years old. I personally haven’t had any significant issues with a car under 9-10 years old in nearly 20 years.

If you’re worried about cost, the only thing you should care about is the NPV of all expected costs. And don’t use Edmunds for that info - aside from purchase price, their maintenance and repair costs are terribly innacurate, IMO.

Compare, for example, a new car at $27k vs 3 year old at $18k. Put them both at 3.75% loan and 3% discount rates, payments spread over 36 months for used or 60 for new. Assume that in 12 years, the new vehicle is still worth $4000, the used worth $2500. For the vehicles to have the same net present cost, your maintenance and repair costs would have to equal $377.27 per month, each and every month starting the day each vehicle gets out from under its loan (ie month 37 for used, 61 for new). Those are outrageously high estimates of cost. A more reasonable estimate is $50-75, which would bring the used car to an NPV of -$22,941.65 and the new to -$29,580.69 - a win of over $6,500 in favor of the used car.

The one way that you can reverse this is if the used car price is too close to the new car price OR if by buying new, you can completely avoid an entire car purchase later (ie, if you think this would be your last car if you bought new because you’ll only be driving 12-15 more years, but you’d likely have to replace the used one before you quit driving if you went that route).