52k miles, "high mileage"?

I don't understand from OP's post what the sales price was on the 2009 Prius with 52k. You rolled in the Malibu and paid it off, what was outstanding on the loan, etc.? Without knowing the sales price of the Prius by itself nobody can say whether you got a good or bad deal.

Then $5900-$2500 = $3500. $22k price - $3500 = $18,500. Not a great price with those miles, but not bad. The 52k miles don't worry me, though. Trading in endlessly is generally a bad idea but this is a unique vehicle with its incredibly low gas cost and frankly it's a game changer to how one need look at ownership costs of a car. I actually realized today that we're close to the point in gas prices that the money saved in our Prius vs our previous car almost 100% covers its lease payment--and it's not like our other car didn't have depreciation, repair costs, etc. (which are all covered in the lease payment anyway). 20,000/year at high 40s mpg vs 20 mpg with gas price $3.70 in our area it's a darn lot of money.

I'm wondering why the OP has yet to say what the sales price on the car was. Does she know?

I have a friend who made a statement that almost made me cry recently. He traded in a 2008 Accord for a 2011 and thought it was a good deal because his payments went down (and obviously instead of 2 years remaining he now has 5 years of payments, the payments down due to some small equity he had in the accord). This kind of financial "prowess" is unfortunate, people just have no damn clue how to figure finance rates and loan terms, etc.

AStuke your family is simply towing the anti-hybrid line. They don't even know why. But they know they hate the Prius and by God they'll badmouth it because it just seems like the right thing to do. Also, with gas prices at $3.60/gallon nationally they're pissed off at the idea that gas prices no longer matter very much to you. Even if they can't admit it. In a way some will wish they could cut through the nonsense and buy a hybrid too but since they can't they hate to see you swim from the storm to the shore so want you to join them in gas price shock hell that they are now in. This pettiness carries them and keeps them warm as the gas pump they regularly grasp spurts gallon after gallon into their gas-drunk automobile.

 

SWO,
Will the gap be calculated based on the 22k loan or (22k - 5900) ?
I wonder what the incidence rate of Prius ending up totaled by an insurance company is for low to medium risk drivers. Each one percent annual rate on a $1000 gap is $10 of the premium returned. If you are right about the premium cost I would personally prefer the risk of folding negative equity into a future car loan.

Can you tell I am not an insurance fan ?
The cost for people who buy an amalgam of extended warranty, gap, and no deductible comp and collision becomes a big fraction of car carrying costs. Quick estimate:
Gap - $15/month
Warranty - $25/month
Comp/Coll - $ 50/month ?
Total -- $1100 a year.

Seems to me one of the advantages of buying a reliable car like the Prius that holds its value is to at least in part self-insure. It does require the discipline of not squandering the premiums, which should be either saved or used to pay off high interest debt.

 

The gap would cover the gap between the loan amount and whatever the totaled value is at the time. Has nothing to do with purchase price or negative equity.

First off, the GAP is a one time fee. Its not a monthly premium or a yearly policy...so if you're financing it its $3.33 a month...not $15.

You also don't know if you'll be able to fold negative equity into a future car loan in this situation. Doing it when trading a car is one thing, the dealer finance people just build it into the deal and the finance company doesn't really see what the issue is. However, if theres no car to trade in then the finance company has to cut a check to a lender when there is no trade...which they may or may not do. We also know that lending restrictions are getting tighter, and stuff like this puts auto lenders at risk. We don't know if 3 years down the line you'll even be able to finance more than the purchase price of a car.

She has to assume that if the car is totaled she's going to have to pay the negative equity off in cash before she can buy another car.

For you or me I agree with you, but we are dealing with a person here who has said they don't have the money, and thats what insurance is for. I have high deductibles because I've got the money to pay them. If I was worried about paying for a $1500 car repair, had tuition to pay for, kids in daycare, etc...I'd have lower deductibles.

She needs this coverage...she might even have it already...look at your loan documents AS and see. They may have to include GAP if the percentage of the loan is more than a certain amount over the book value of the car. Generally I think they'll only finance 130%.

I just don't understand your logic here Sage. On one hand you're saying the cost of this coverage is too much ($200 for the peace of mind of knowing that if the car is totaled...its off your plate and you won't have to write a big check and you can just go get another car seems like a deal to me), yet taking on a loan for the price of a new Prius on a 2 year old Prius with 50,000 miles is a good decision because it hedges her bet against rising fuel prices and interest rates?!? From a financial perspective those two opinions don't work together. The extremely inexpensive gap coverage simply hedges her bets against having to pay out a huge sum of money she likely will not have should the car be totaled.

How likely is a Prius to be totaled? The Prius isn't magic...its as likely as any other car to be totaled in a serious accident...perhaps moreso because of higher dollar components that might be damaged or destroyed.

I don't see how you could present this situation to a financial advisor and have them *not* recommend an inexpensive GAP policy.

 

i think he question was not if Prius makes financial sense to her, but if 50k miles is a lot of miles for $14k Prius.

Since Prius is very reliable vehicle and 14k is pretty good price for 2 year old Prius, then I would say that she is good to go.

Compared to her old car, she has lowered her costs in both fuel and maintainance and got a really nice vehicle.

 

Very true Spwolf. SWO and I went off on a tangent.

 

Yep, one time fee. However a little googling I did reported costs of $600 so I estimated $200 a year. I found a site that was convincing in showing that substantial negative equity on a *new* car purchase is gone within 3 years; the situation is better with a used car because the early high depreciation of a new car is not in play.

IF she cannot fold negative equity into another car purchase, AND she does not have the savings or another way to pay the old loan, then I agree with your advice. Heck, even a cash advance on a credit card is going to be way cheaper *on average* than gap insurance.

That is not a persuasive argument.

I am not saying GAP insurance should not be bought by OP; I said I don't think we know enough specifics of her finances to make a blanket statement that she should buy another expensive insurance. I'll readily admit that most people define expensive as the out of pocket cost, while I think of it in terms of value as a hedge. My WAG is that 90% of GAP premiums are not returned to the consumer which in my book makes it a lousy purchase. Addendum:

From an insurance agent website. Those look like better odds, but there must be tremendous variation by owner, car, and location and I do not know the specific method of the calculation or how much spin the insurance advocate has introduced.

Some people are forced to throw good money after bad decisions, no doubt. OP said she can easily afford her payments on the $22k loan which leads me to suggest she consider her risks and options rather than just say what sounds like "OP is in a corner; she has to buy more crappy insurance." Well, I now know more about GAP insurance than I ever wanted to. I read that payout is limited to 130% of the car's market value in most policies.

 

True, but in this situation the benefits from a depreciation standpoint for the used car purchase are outweighed by the fact that she has rolled a large sum of negative equity into the purchase. It likely will be upside down for the bulk of the 5 years of the finance term.

Not when you factor in having to pay 30% interest on that cash advance...

The issue is we wouldn't know if she would be able to fold the negative equity into a new car loan at the time until we get to that time. We don't know whether she would even be capable of getting a car loan at all in 3 years, let alone one that the lender also took on the liability of paying off what would then be unsecured debt as a part of. We just plain don't know what the lending landscape will look like in a few years.

We also don't know that she will have $5900 available in credit card advance...or that her card company will allow her to take that much cash if she even tried to. We know her credit is in the 650s...which may as well be 500 to credit card companies today.

The way I look at it is this, most people are in a position where they live paycheck to paycheck, they don't have a lot of savings, and when a big catastrophic loss comes along...without insurance they are defenseless to deal with it. I agree we don't have a full picture here, but we do know the following:

1. The car is way upside down because of previous negative equity that has been rolled in

2. The OP has stated she has a low credit score, a score of 650 in the current lending climate is low.

3. The OP has stated that she does not have much savings due to her household projects, her and her husband's schooling, and daycare for her kids, and is concerned about being able to pay for repairs to an older car without the benefit of a warranty.

These three things lead me to believe, as someone who sees a lot of people's assets, income, etc, that this person does not have adequate cash reserves, and should some sudden, quick loss occur, would be in trouble without insurance coverage.

If I were choosing between $200 for gap coverage ($600 is outrageous, between $200-$400) and $2,000 for a warranty...and I were in this situation...I'd buy the gap coverage and skip the warranty.

To the OP, I apologize if we have scared you away by sitting here surmising a bunch of stuff about you and your situation, that was never my intent. My only goal is to help...

 

My mental arithmetic says otherwise. If it is paid off over three years then she will pay ~ 50% more than starting principal in interest. Find me a GAP insurance that returns 50% of premiums to its customers in claims. Double dare ya.

The more I think about insurance the less I like it. I wholeheartedly agree that a core problem is unbridled consumerism; all this insurance crap is a symptom of buying more than one can afford. Yet it is a real burden in and of itself. I wonder how much insurance a middle class family pays out in premiums on average every month to avoid a small chance of temporary lifestyle degradation. A comfortable retirement ? I have to admit that my simple-minded thinking just thinks it is obvious for people without a lot of money to save the high premiums and avoid most of future risk with things like good car maintenance and avoiding what are stupid behaviors anyway like driving while drunk or yapping on the telephone. The insurance portfolio becomes an agent of poverty. People should get off that particular treadmill.

I added up our costs (health, car, home) to $3250 a year, and I am a pretty aggressive self-insurer. The 'peace of mind' meme is a faustian bargain. Nasty irony that the people least able to afford insurance costs and derive the least benefit buy it the most.

By the way, I would have guessed like you that OP will encounter very high interest rates when she tries to finance purchases with a 650 credit score, but she posted earlier that she pays 5.6% on the Prius loan *with a BK on her record.* Either she is an outlier, was really lucky, or the stories of generalized strict underwriting and high credit risk premiums are exaggerated.

 

Was it $14k? I have seen only guesses from people, not the OP...

 

Thats beside the point. We don't even know if putting it on a credit card is even an option...

But if the starting principal is $5900, then 50% more in interest is essentially another $3,000, so it would cost her $9,000...or it could have cost her a $200 one time premium for gap insurance.

5.6% right now for a car loan is high though, when you factor in that on a certified Toyota its maybe 1.9% right now for top tier borrowers.

Auto financing is always going to be auto enhanced...so that helps...but had she been talking to a private lender and not a dealer lender...I bet they wouldn't have done the loan at all.

I deal with financing every day, mortgage financing not car financing, but the stricter guidelines are very real...

Its a lot...but oftentimes theres no choice...

 

I'll give you the benefit of the doubt and presume you know this is a fallacious argument.

 

In theory yes, but in the practice of reality for someone who doesn't have cash reserves do deal with a big, unexpected expense its a different thing.

 

No need to be annoyed. Just ask yourself:

- Have any of these critics actually owned a Prius? (I'd wager they haven't.)

- Do any of them know the facts or are they just repeating stuff they've heard? (Read the "Prius Myths and Rebuttals" thread on this site - a real eye-opener.)

- Doesn't this criticism sound a lot like the "Sour Grapes" fable from childhood? (Think of that every two weeks when you're getting 7 gallons to fill your tank and they're getting 19 gallons to fill theirs.)

It's easy to shrug off criticism when you consider the source in this way. Our friends who had the same criticisms about the Prius now ask us to drive whenever we go out to dinner and marvel at how great a car the Prius is. Don't worry, that'll happen to you as well.

 

This calculation didn't allow any trade in value at all for his existing car!

I think you should have allowed 3k to 4k trade in value and then the true price payed for just the car itself is about $18000. Not a particularly good deal for the mileage on the car.

 

I can answer for OP:

Pride is expensive.

 

Right you are, I noticed this error afterwards also. Auction value is about $2k, so I would say the Prius cost about $16k.

 

Unfortunately I'm starting to think the OP got fleeced with one of the oldest tricks in the book. I think ultimately they didn't give her any trade in value for her car, they hid it down in all the numbers and told her "we'll pay the loan off on the Malibu as a part of this deal".

So, essentially they sold the Prius for a market value, and got a free Malibu out of it they can turn around and make $5k off of.

 

Yep I think which ever way you look at it she didn't get the best of deals. She either good somewhat screwed on the trade-in or she got somewhat screwed on the Prius purchase price.

BTW. I'm not sure that the negative opinions she's getting from friends and relatives are all specifically related to the fact that's it's Prius.

 

^^ No.

kbb has 3 base Prius with similar mileage offered at $19k. She paid $22k and a car worth about $2k, and in return received the Prius (at a very decent apr for her credit rating), most of the value of a 125k extended warranty, and a 5900 loan was paid off.

(22+2) = Prius +5900 + 900 + 1000 (tax) + 100 (title, license)
$16,100 = CPO Prius (she thinks is a package 2, new msrp $24,000)

 

Alright then. I though the 05 trade-in would have been worth more than 2k. But if 2k is fair then she got an ok deal.