So I stupidly purchased a new car...

[Beren]

...and now I am trying to formulate an exit strategy.  After biting on 4.9% financing for a 2007 Toyota Prius (Package #5, loaded except for leather seats), I've realized that I was quite content with my old Honda Accord.  There's no way to get that one back now, as it has already been sold.  Nor is there any way to return the Prius, as I have run up a few thousand miles already.  I can make the payments, though I'd prefer to shed the expense.  The car is nice enough, if a little on the cramped side for me.  It's more that I've learned that the grass isn't any greener.  Anyone have experience recovering from poor financial investments such as "too much car?"

I've accepted that I'm going to take a washing due to depreciation, taxes, etc.  Now I'm trying to control my losses.

I should be able to get $500 from the state as a rebate on buying a hybrid, and I can claim $1800 or so against my 2007 taxes.  (However, do I still have to have ownership of the car when I file next year in order to claim that credit?)

Currently, I owe $25,150 on the loan.  Private party value on a similarly equipped 2006 model is $23,915 according to Kelley.

A mid-1990's Honda Accord EX with ~90,000 miles can be had in my area for about $6,000.

Options:

A.  Trade the Prius + cash to the dealer for a used Accord.  I'd get less for my trade-in and would probably need to take out a used car loan to pay for the Accord.

B.  List the Prius for sale and wait six months to see if anyone bites at a fair price.  Its value will trend downward during that time (slightly) and I will need to continue making loan payments on the Prius.  (If it takes that long to sell, it might be just the same to take less from a dealer in the first place, up front, right?)  Once sold, go buy a used car (probably need a loan.)

C.  See if I can save money towards a replacement car while making my current payments.  Buy the replacement car for cash, then sell the Prius.

Any advice you'd care to offer?

[Gewehr98]

Sell it before the batteries need to be changed, for sure.

As gas prices rise this summer, maybe you'll have better luck selling it?

[Northwoods]

Well, I drank the Dave Ramsey Kool-Aid, so out of the options listed I can only recommend (c).

Also, short of a rare collector's car, cars are NOT INVESTMENTS.  They are EXPENSES.  Nothing that looses on average 60% of its value over 4 years should ever be considered an investment.  Even if that Prius only lost 40% of its value over that time it's still an awful lot of money to throw out the window.

Here's my advise.  Get yourself out of the Prius and into some cheap old car.  If you pick up a $1000 beater, even if you have to borrow $4000 to cover that purchase plus the amount you're upside down on the Prius you'll be able to pay that amount off in a few months, and then a few months later sell the $1000 car and get a $2-3000 car.  6 months later with the money you've been saving that was going to the Prius payments plus the $2-3000 car that is still a $2-3000 car you can easilly buy that $6000 Accord.  With cash.  It'll take you a year to get there (maybe less if you're intense), but then you'll own that $6000 Accord outright and if you want to keep trading up every year you'll be able to get back into a $18000 car is just a few years.  And not owe any banks a dime in the process.

[Art Eatman]

"For Sale:  200X Prius. (Yada, yada, all the good stuff about the car.)  Getting larger vehicle for new job."

Always have a reason for sale with which people can identify. 

Get out from under as best you can...

Art

[Manedwolf]

If you get another accord, I'd go for a sixth gen, 1998-2002.

Wider than the 90's models, more stable, better handling, better engine (F23 2.3l), shares a chassis with the Acura TL, and best dash design ever. They screwed up the new ones, IMO.



This model. Wide, narrow headlights, not the new "is that an Accord or Civic?" ones. One car magazine called this generation to be the car equivalent of a sharply tailored suit, especially in black. Put the foglight package on it, keep it polished, and it continues to look sharp and fresh.

Here's mine...with Lexus HID headlights installed in it, now. A lot of the suspension and other parts are Acura TL Type S. (Oh, yeah, and with a cold-air intake and ceramic header, a car this big gets 30mpg or better highway if I don't floor it on onramps. You don't need to ride in a bubble to get good fuel economy.)

[280plus]

Yep, me and the wife got ourselves into a lease for a nice 05 Monte. Only the other day did I find out she's been paying sometimes EXORBINANT fees for her "3000 mile checkups". I was fit to be tied. Not ONCE did the salesman mention this little scam he presented it as "free oil changes" and she, being the dutiful one, has been quietly paying all along. And isn't it tied to the deal? If we DON'T do all this crap it will affect our final payoff when the lease is up.

[/rant]

[roo_ster]

Holy mackerel!  $26K+ for a car with less utility than a $15K+ Civic sedan.

And folks think those that drive BMW 3-series pay through the nose for their status symbol.

Beren:

I hope you find a way to back out of that vehicle.

[Brad Johnson]

Currently, I owe $25,150 on the loan.  Private party value on a similarly equipped 2006 model is $23,915 according to Kelley.

A mid-1990's Honda Accord EX with ~90,000 miles can be had in my area for about $6,000.

Don't be too surprised when you are offered around $20K on the trade-in.  Dealers normally try to have no more than around 85% of the saleable value in a used vehicle (if that much).

If you have time I'd try to e-bay the Pious Prius.  Someone, somewhere, will want the thing, and for far more than you are going to get in trade.  Be sure you have worked everything out with your lender beforehand since you'll be upside down on the payoff.

Brad

Brad

[Headless Thompson Gunner]

You bought a Prius??  Shudder...

Good luck selling that.  You'll need a miracle.  Or perhaps a war with Iran.

At worst, you could just keep the durned thing and drive it.  It sort of approximates the functionality of a real car, doesn't it?  Paying $25k for the privilege of driving anywhere you want isn't so bad.  Besides, it'll help you pick up hippie chicks and hot college girls.  Pretend you're an art professor and act "passionate".

You could make a road trip to southern California and see if you can sell it in a weekend.  Buy a real car and drive it back, or take a plane back home.



On a more serious note, why can't you simply list the Prius for sale in a private transaction and wait a few weeks or moths for it to sell?  You can find a used Honda anytime anywhere for any price, so it doesn't hardly matter how long it takes you to sell the Prius or how much you get for it.  No need to bother with used car loans or whatnot.  Just buy the an Accord that's priced at whatever amount you get for the Prius.

If you're a betting man, you could try to bet on when the next gas crunch will occur.  Given tensions in the middle east, it wouldn't unreasonable to predict a spike in gas prices sometime int he next year or three.  Wait till then and your Prius will become a lot more marketable.  Of course, this assumes that you can stand to be seen in that clown car for the next year or three... 

[Beren]

Thanks for the feedback, guys.   (Mandedwolf, nice job with the lights!)

For now, I think I'm going to make the payments and start setting aside money.  Once I have enough for a down payment, I'll pick up a 1998-2002 Honda Accord for as little as possible.  Then, I'll list the Prius for sale.  The upside-down amount is lost, anyway.  Any payments I make that put me ahead on the loan should be mostly recoverable after I sell, if I am patient and sell for a fair price.

[Firethorn]

I'd have to agree with Gunner.  Keeping it until you have some equity in it might be for the best.

Of course, I'm almost done with my car loan, and planning to keep it for another 5 years at least.  If I can successfully do that, I'll be able to buy a better car with cash.

[Sergeant Bob]

Depending on the length of your loan, getting "equity" could be difficult.
I don't know how popular those things are but, waiting too long might put you deeper in the hole if the resale on those is not that great.

I think I would cut my losses. Even if you do pay enough to get any equity in it, you will have thrown away a lot of money to get there. No sense throwing good money after bad.

Right now you are only upside down a little over $1200, which is probably equal to about two payments. If you were to sell it you'd really only lose $600 on the sale, as you'd probably be making the next payment anyway. Also consider the higher insurance payments.

[CAnnoneer]

The more you hold it, the more it will depreciate. Take the hit now if you can, while it is still in warranty and has that new smell. I heard hybrids are bought faster than produced, so it should not be that bad a hit. Art is right about having a good believable excuse. $25k for it is ridiculous. 4.9% is ridiculous as well. Join a credit union through your employer or your wife, and you can get 3.9%.

Once you sell it, go buy yourself a brand new Hyundai Elantra or Hyundai Accent - well-built, economic, comfortable, roomy, and dirt-cheap. If you do your homework and put the screws on the car dealer, you can get a brand-new Elantra for less than $13k. It comes with great warranty and cheap maintenance as well. The Accent is even better if you need a good commuter but don't need it to be a 4-door.

[Gewehr98]

The Accent is even better if you need a good commuter but don't need it to be a 4-door.

Huh?

Did Hyundai stop making 4-door Accents? 

My wife's 4-door Accent, before she traded it in for a 4-door Elantra:

[CAnnoneer]

Huh? Did Hyundai stop making 4-door Accents? 

The Accents I have seen around here are all 2-door, but the 4-door do exist as well:
http://www.hyundaiusa.com/vehicle/accent/accent.aspx

However, it seems all the Elantras are 4-door:
http://www.hyundaiusa.com/vehicle/elantra/elantra.aspx

Damn good cars. The 2004 Elantra won a consumer award for that year.

[Art Eatman]

A 2006 study found that the average American walks about 900 miles per year.
Another study found that Americans drink an average of 22 gallons of beer
per year.
That means, on average, Americans get 41 miles per gallon.

Hey, what's a little non sequitur among friends?

Art

[Bogie]

You bought a hybrid?

One heckuva hit on the environment...

Personally, I'm still driving the 1996 Mitsubishi Mirage that I bought new. I change the oil every 5,000 miles/6 months (mobil 1), so that, new tires every 3 years (bogie likes tread...) and 30mpg is pretty much the only environmental impact...
 
Just had the timing belt done, will probably get another 120K out of it.
 

[Beren]

Interesting. I'll check out an Elantra.  Any specific advice concerning trim?

[roo_ster]

Thanks for the feedback, guys.   (Mandedwolf, nice job with the lights!)

For now, I think I'm going to make the payments and start setting aside money.  Once I have enough for a down payment, I'll pick up a 1998-2002 Honda Accord for as little as possible.  Then, I'll list the Prius for sale.  The upside-down amount is lost, anyway.  Any payments I make that put me ahead on the loan should be mostly recoverable after I sell, if I am patient and sell for a fair price.

Beren, be very careful, here.

Some auto loans are designed so that ALL interest is paid first, before the first cent of principle.  Not likely in a Toyota-financed loan, but my dad has horror stories form back in his day.  The mortgage lenders are pikers compared to the auto lenders, IMO.

[CAnnoneer]

Interesting. I'll check out an Elantra.  Any specific advice concerning trim?

The basic trim - GLS - is pretty good and has many features as standard. 

[Firethorn]

Some auto loans are designed so that ALL interest is paid first, before the first cent of principle.  Not likely in a Toyota-financed loan, but my dad has horror stories form back in his day.  The mortgage lenders are pikers compared to the auto lenders, IMO.

Isn't that the standard?  Or are we talking about a loan where they calculate the interest over the life of the loan at the start, and you're essentially paying off a static sum after that?

[Northwoods]

In typical mortgage loan amortization around 80-90% of your payment goes towards interest at the start, and that percentage declines with each payment until at the end it's less than 1%.  For typical auto loans, becuase of the shorter terms (5 years instead of 30) it's more like 20-25% goes to interest at the start.

I think that what jfruser was saying was some auto lenders were calculating that if you borrowed $20k for a car at 8% that the total of the interest would be $4330.  They would then credit your payments against that $4330 until it was entirely paid, and then they'd start to apply the payments to the $20k principal.  Essentially it can be thought of as a pre-payment penalty that doesn't allow you to avoid any interest by paying off the loan early (whether by making extra payments or by selling the car). 

All the more reason to not go into debt to buy a car in the first place.

[K Frame]

"Some auto loans are designed so that ALL interest is paid first, before the first cent of principle.  Not likely in a Toyota-financed loan, but my dad has horror stories form back in his day.  The mortgage lenders are pikers compared to the auto lenders, IMO."

That's how a standard installment loan with a fixed monthly payment works. It's called amortization.

At the beginning of the loan your principal is very high, so the amount of interest is also high.

As your monthly payments reduce the principal the proportional amount of each payment going towards interest is reduced.

There are a lot of good amortization calculators that show you how much of every payment goes for interest and how much goes for principal over the life of the loan.

There are a couple of ways of reducing the amount of interest that you pay...

1. Pay half of your monthly payment on the first of the month, pay half on the 15th.

2. Pay your standard monthly payment, and add money above and beyond that. All of the "over payment" will be credited towards principle.

Just make sure that you read the fine print on your loan documents to make sure that you won't incur a penalty for doing either of the above. If there is that kind of fine print, I'd advise not taking the loan.

[K Frame]

I think that what jfruser was saying was some auto lenders were calculating that if you borrowed $20k for a car at 8% that the total of the interest would be $4330.  They would then credit your payments against that $4330 until it was entirely paid, and then they'd start to apply the payments to the $20k principal.  Essentially it can be thought of as a pre-payment penalty that doesn't allow you to avoid any interest by paying off the loan early (whether by making extra payments or by selling the car). 

All the more reason to not go into debt to buy a car in the first place.

Oh crap, I thought that was now illegal in most states.

[garyk/nm]

Not to rain on your parade, but if you are relying on KBB for values, you are going to be in for a rude surprise at some point. KBB is the most highly "optimistic" guide available. For a dose of reality, check out www.edmunds.com . Edmunds is closest to Mannheim (which you don't have access to, but dealers do) which is the weekly updated auction prices for all things automotive.
Dealers only use KBB for pricing their own cars. You'll never catch one using it to appraise a trade in.