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Discussion Starter · #1 ·
Hi there! I'm planning on buying a Prius in the spring and am researching financing options for the car. I'm exploring leasing a car for a number of reasons, but I have a question on the issue of residual value and the Prius.

It's clear from looking at used-car ads that the Prius holds value exceptionally well-- 2004 model vehicles have asking prices comparable to what they were sold for. Granted, this is southern California and the market for hybrids is tight.

My question is this: lease payments are determined by the remaining value on a vehicle at the end of the lease term. Do dealers use a rigid formula for determining residual value, or would a Prius lease be even more economical considering how well the cars hold their value?

I realize this is a speculative question, but I think it's one worth considering-- I wouldn't want to lease a car and pay more because Toyota won't acknowledge how well the cars retain their value.

Thoughts? Insights? Things I'm overlooking?

Thanks!
 

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First off, if you lease you cannot claim any hybrid car deductions or credits when you file your taxes. Why? Because you don't own the vehicle, the leasing corporation owns the vehicle. It is important to point that out just so you know of what you might be missing if you lease vs. finance.

With that out in the open, we'll cover leases. Forgive me if I get a little too in-depth about this topic.

From a mathematical standpoint, a lease is like a loan with a balloon payment. The residual value of the vehicle at the end of lease term is the balloon. Leases have lower monthly payments because you aren't amortizing the entire amount of the car over the period of the lease, but you are amortizing a portion of the cost of the vehicle over the lease period. The remaining portion is called the residual value. If it were a purchase loan it would be called the balloon. When you lease at the end of the period you can pay off the residual and keep the car, which is usually a pretty large sum of money, or you can return the vehicle to the dealer. If the vehicle is in good condition and has not gone over the total mileage limit that is part of the lease you can just walk away, or you can get a new car. If you have gone over the mileage limits of the lease, you have to pay for those miles over the allotted amount. Something to think about if you are considering a lease.

Addressing your question directly. Lease payments are determined by the residual value, but really lease payments are the amortization of the amount of the cost of the vehicle that is not part of the residual value. So, if the term is fixed at a particular lengthy, say 36 months. The higher the residual value the lower your monthly payment, the lower the residual value the higher the monthly payment. You will have to talk to a dealer about how residual value is calculated, but I suspect that they have a residual value for different lease lengths. Residual value is a number that is figured up front when you sign on the dotted line. It is not something that is negotiated at the end of lease. In the world of financing, everything has to be stated up front, interest rate, term, minimum payment amount, any prepayment penalties, etc.

Does this help. Ask more and I will do my best to answer.
 

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sdpacswimmer said:
Hi there! I'm planning on buying a Prius in the spring and am researching financing options for the car. I'm exploring leasing a car for a number of reasons, but I have a question on the issue of residual value and the Prius.

It's clear from looking at used-car ads that the Prius holds value exceptionally well-- 2004 model vehicles have asking prices comparable to what they were sold for. Granted, this is southern California and the market for hybrids is tight.

My question is this: lease payments are determined by the remaining value on a vehicle at the end of the lease term. Do dealers use a rigid formula for determining residual value, or would a Prius lease be even more economical considering how well the cars hold their value?

I realize this is a speculative question, but I think it's one worth considering-- I wouldn't want to lease a car and pay more because Toyota won't acknowledge how well the cars retain their value.

Thoughts? Insights? Things I'm overlooking?

Thanks!
Hello sdpacswimmer, Toyota is the only Lease provider ! They do not have competition due to I'm clueless as to why but other financial institutions that offer lease deals to customers on any ICE vehicles shy away from "Hybrids" I believe that the major banks decision makers thinks that the "Hybrids" are very difficult to "Auction-Off" the lease returned buch of Prius... Therefore the residual value of Toyota Prius from Toyota Financial Services are _Low_Balled_ I believe and seen that Other
Toyota ICE vehicles has a much _Higher_Residual Value thus your monthly payments are _Lower_ in a conventional vehicle but NOT in a Prius. ! Also Toyota offers a "Cut Throat" special $money$ rate on the ICE vehicles that they want to "Push" Not on the Prius though, Prius sells by it-self-No need to offer any inflated "Residuals" nor $Money$ rates.
More questions please ask, I'm with Toyota Sales,Finance,Lease for over 26 years ! Glad to offer my insights to all PriusCentis .....
 

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Discussion Starter · #4 ·
Thanks for your reply. I should have clarified that I understand how leases work compared with traditional financing.

My question is about the negotiated residual value at the BEGINNING of the lease term, since that determines (in large part) the payment. I understand that the other factors are the agreed-upon price, the money factor/interest, and the term of the lease. Since Prius pricing doesn't have much room to move (and I'm a Costco member), I figure I'll be paying right around MSRP, give or take $500. That's the capitalized cost. Next is the term, I'm figuring three years. Money factor is typically related to credit, and mine is excellent.

That leaves residual value, and my question is about the Prius and how it's holding value. We all know that in high-demand areas (like me here in SoCal) the cars are holding their value exceptionally well. The '04 and newer models seem to be depreciating at less than 6% per year. It's pretty clear that this is a MUCH slower rate of depreciation compared to, say, a GM car or any number of European cars. So...since I'm finding that I'm a new-car-every-three-years sort of guy, a lease where I plan to return the car makes sense.

Therefore, the residual value of a Prius, if calculated according to what the car is actually selling for rather than a preset formula, makes lease payments even less expensive compared with traditional financing.

The real thing I'm curious about is whether anyone here has leased a Prius and what sort of residual value the dealer was willing to agree upon at the outset of the lease, since it's clear from the used-car market that Prii are in exceptionally high demand and don't depreciate very much at all.

Basically, I'm wondering whether dealers are using real market data from how the cars are sold or whether they have a preset formula that they use to calculate depreciation.

Does that make more sense?
 

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Discussion Starter · #5 ·
C.Rickey Hirose said:
Hello sdpacswimmer, Toyota is the only Lease provider ! They do not have competition due to I'm clueless as to why but other financial institutions that offer lease deals to customers on any ICE vehicles shy away from "Hybrids" I believe that the major banks decision makers thinks that the "Hybrids" are very difficult to "Auction-Off" the lease returned buch of Prius... Therefore the residual value of Toyota Prius from Toyota Financial Services are _Low_Balled_ I believe and seen that Other
Toyota ICE vehicles has a much _Higher_Residual Value thus your monthly payments are _Lower_ in a conventional vehicle but NOT in a Prius. ! Also Toyota offers a "Cut Throat" special $money$ rate on the ICE vehicles that they want to "Push" Not on the Prius though, Prius sells by it-self-No need to offer any inflated "Residuals" nor $Money$ rates.
More questions please ask, I'm with Toyota Sales,Finance,Lease for over 26 years ! Glad to offer my insights to all PriusCentis .....
Hi there-- thanks for your reply. What's the approximate percentage of the initial value that you think I'd get at a dealership if I were trying to lease a Prius?

In other words, what fraction of the capitalized cost does Toyota think remains on the Prius after 3 years?
 

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sdpacswimmer said:
Thanks for your reply. I should have clarified that I understand how leases work compared with traditional financing.

My question is about the negotiated residual value at the BEGINNING of the lease term, since that determines (in large part) the payment. I understand that the other factors are the agreed-upon price, the money factor/interest, and the term of the lease. Since Prius pricing doesn't have much room to move (and I'm a Costco member), I figure I'll be paying right around MSRP, give or take $500. That's the capitalized cost. Next is the term, I'm figuring three years. Money factor is typically related to credit, and mine is excellent.

That leaves residual value, and my question is about the Prius and how it's holding value. We all know that in high-demand areas (like me here in SoCal) the cars are holding their value exceptionally well. The '04 and newer models seem to be depreciating at less than 6% per year. It's pretty clear that this is a MUCH slower rate of depreciation compared to, say, a GM car or any number of European cars. So...since I'm finding that I'm a new-car-every-three-years sort of guy, a lease where I plan to return the car makes sense.

Therefore, the residual value of a Prius, if calculated according to what the car is actually selling for rather than a preset formula, makes lease payments even less expensive compared with traditional financing.

The real thing I'm curious about is whether anyone here has leased a Prius and what sort of residual value the dealer was willing to agree upon at the outset of the lease, since it's clear from the used-car market that Prii are in exceptionally high demand and don't depreciate very much at all.

Basically, I'm wondering whether dealers are using real market data from how the cars are sold or whether they have a preset formula that they use to calculate depreciation.

Does that make more sense?
Actually, every time I calculate a lease on a Prius : The money rate is higher than any other Toyota vehicle leases provided by any major banks including the TFS ( ToyotaFinancialServices )for cross shopping purpose.
The residual value of a NW #8 packaged Prius are as follows: MSRP list
$29.446 the Cap Amount same as the MSRP list: The residuals are as follows: $14.987 at 24 mos, $13.249 at 36 mos, $10.559 at 48 mos, You see that each years "Residual Values" are lower than ( Artificially lower ) than other Toyotas ? Thus your payments are higher take in equation that the wholesale lease money rate on the Prius are around 0.00255 rate when you can lease other Toyotas at as low as 0.00003 to 0.00194 so you can see that other ICE toyotas has a lower "Money Rate" and higher lease resaidual. So your payments are higher ! In other hand if you look at faster depreciation to purchase the lease Prius at the end then will be a bog "Bonanza" for you 'cause you will have a TON of Equity as resaleble merchandise. Consider it as "Capital Gain" ! A 2 year old off lease Prius at $14.987 ? A Kelley Blue Book trade-in value will be $23.500 plus ! Not even mentioning the "Retail value " I will love to buy all lease returned Prius and will make a killing. Someone paid the faster depretiation for me !
 

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Discussion Starter · #7 ·
Are you kidding me? 50% depreciation in 3 years? That's really disappointing to hear...That seems to be artificially accelerated depreciation, don't you think?
 

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I think that the price of used hybrids is currently inflated because of relative low availability of new hybrids. Once production outpaces supply (and it will), then I do not see why a used hybrid will continue to enjoy a premium.

I think that people who buy new hybrids now... expecting the resale to be similar to the historical data for hybrids, will be dissapointed.

/Jim
 

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sdpacswimmer said:
Are you kidding me? 50% depreciation in 3 years? That's really disappointing to hear...That seems to be artificially accelerated depreciation, don't you think?
Exactly, that is why I'm saying : The lease ( Prius ) is not good to anyone due to artificially accelerated as you put it 50% in 3 years. Should be 40% depreciation over 5 years ! A $29.000 top package Prius will trade around
$17.000 wholesale and $21.000 resale ! This is a good number ! and every Prii is worth it !

Cheers,
 

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Discussion Starter · #10 ·
C.Rickey Hirose said:
sdpacswimmer said:
Are you kidding me? 50% depreciation in 3 years? That's really disappointing to hear...That seems to be artificially accelerated depreciation, don't you think?
Exactly, that is why I'm saying : The lease ( Prius ) is not good to anyone due to artificially accelerated as you put it 50% in 3 years. Should be 40% depreciation over 5 years ! A $29.000 top package Prius will trade around
$17.000 wholesale and $21.000 resale ! This is a good number ! and every Prii is worth it !

Cheers,
is this negotiable?
 

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sdpacswimmer said:
C.Rickey Hirose said:
sdpacswimmer said:
Are you kidding me? 50% depreciation in 3 years? That's really disappointing to hear...That seems to be artificially accelerated depreciation, don't you think?
Exactly, that is why I'm saying : The lease ( Prius ) is not good to anyone due to artificially accelerated as you put it 50% in 3 years. Should be 40% depreciation over 5 years ! A $29.000 top package Prius will trade around
$17.000 wholesale and $21.000 resale ! This is a good number ! and every Prii is worth it !

Cheers,
is this negotiable?
You mean negotiate the "Residual Price" upwards ? No ! Downwards yes.
 
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