Buy or Lease 2021 RAV4 Hybrid Limited? Or 2021 RAV4 XLE AWD? (Supernoob)

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Hi There,

I’m having a hard time deciding what is the best move here:

Buy or Lease (with the intention of buyout then → sell):
2021 RAV4 Hybrid Limited
Or
2021 RAV4 XLE AWD

I plan to sell the car in 3 years, right before 2025. I am in Northern California. A friend of mine suggested that I go after leasing the car (0 down, make payments, then buyout the car at the end and turn around and sell it) versus buying the car now and having to takeout a new car loan and pay for the car upfront to save $). I can probably put $15-20k down now to finance the car if I go with that option.

I understand that the chip shortage has made the market insane, cars are appreciating in value, dealers in my area are all over the place- multiple dealerships quoted $5k - $6995 markup over msrp. nonnegotiable over amount in hundreds.

I should note:

I am at ends between models because knowing that I intend to sell the car in 3 years hoping to get the most amount of $ back for it that i can, that perhaps the model will make a difference on how much I spend and try to recoup.

and

I have a refundable deposit on a 2021 RAV4 Hybrid Limited at the moment. It has been built and will be here in October.

Market Value Selling Price 42,363.00
OTD 46,721.89 (doc fee, tax, non tax fee)

I plan to put roughly, at a maximum, 7000 miles on the car every year, (3 years total expected mileage to be 15,000-20,000). it will not be a daily driver, I have the ability to maintain the car to the highest degree. Minimal wear/tear/mileage.

From my very very basic and limited knowledge/assumptions, my expectations are roughly something like:

Hybrid Limited:
Best Scenario: Buy for $46k and sell in 3 years for $35k+ (loosing less than $10k)
Worst Scenario: Buy for $46k and sell in 3 years for $30k (hopefully lowest sell price) - (loosing $16k)

or

XLE
Best Scenario: Buy for $36k and sell in 3 years for $30k+ (loosing hopefully less than $6k)
Worst Scenario: Buy for $36k and sell in 3 years for $20k (hopefully lowest sell price) - (loosing $16k)
Are these completely irrelevant estimations?

What is the best move here? The way I am looking at it is to try and make the best decision against knowing I will be selling the car at the end of 3 years, and which option will most likely set me up to loose the least money on the vehicle when it is time to sell it. I am also concerned about the residual price of the vehicle as I have no experience with this and have not entered into discussions about that price with the dealership yet and not entirely sure how that factors into the least>buyout>sell option. Currently waiting on MF, RV info from edmunds to help further calculate.

Sorry in advance if i am missing important information or lack of experience/knowledge in discussing this. Learning as much as I can and reading threads across Edmunds, Reddit, Leasehacker to try and absorb as much as possible.

to sum it up.

  1. Which RAV4 should I choose? that will be the best chance for me to sell in 3 years when I no longer need it, that will recoup the most $ against the price I bought it for?
  • i understand that theres a lot of variables here. market will wildly fluctuate given the current shortage, perhaps catching up in 3 years when i plan to sell, mileage/condition of the vehicle, etc.

  1. Should I buy or lease the RAV4? to accomplish my above goals

  2. Am I correct to evaluate that the price i was quoted for the 2021 RAV4 Hybrid Limited average/decent given the circumstances/market right now for a car, a hybrid car, and a rav4. I read somewhere that getting anything better is impossible and that if you find msrp you should take it.

hopefully all this makes sense. thank you very much to everyone that took the time to read. i have much to learn

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I was in a similar situation 2 months ago. I was looking for a RAV4 XLE hybrid with no packages in silver. There were none around and all dealers told me I’d have to put my name on one for the end of July. Luckily, the dealer closest to me had the exact car come in on a dealer trade, but with a convenience package. I took it and I’m glad I got the package.

I usually tend to lease, but ever since this generation of rav4 came out, they lease very poorly. With $4k down, I was looking at 415 to lease. With that much down and that payment, it wasn’t worth it. I put $9,500 down and the payment is $390. I typically do the same driving you do at about 7k per year. While I was planning on leasing, I bought this and actually plan on keeping it a while. 46.5 mpg doesn’t get old!

I was at the top of my budget, but I’d get the XLE premium if I had to do it again. I believe that is the sweet spot for the RAV4. Brokers can correct me here, but I bet on the Limited you are a looking with zero down will put you close to $500 a month.

Good luck!

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Why would your friend suggest this when they have no clue what the used car market will be like in there years or if TFS will allow third party buyouts then? Doesn’t seem like someone who gives good advice.

You cannot loose money. You can lose it.

Considering you’re going to have it for three years, I don’t see the point of getting something that is ridiculously overpriced like this. Why not look into something else, like Equinox, Tiguan, or any other small SUV. RAV4 isn’t that exceptional to be worth paying above sticker.

If you’re stuck on a RAV4, you will never recoup the fuel savings to justify the premium of a hybrid over the gas engine. Simply not possible.

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What is your total cost of “ownership” with each option, assuming a handful of different selling prices?

The only way to evaluate buying vs leasing from a cost stand point is to actually evaluate the costs. Be sure you include all the fees, taxes, costs of capital, etc in doing so.

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If that’s the plan, just lease.

Transfer the risk to the bank.

Benefits,

  • Lower payments compared to a purchase (generally)
  • No Risk of being underwater/negative equity compared to outstanding loan amount. Usually the depreciation is steeper in the early years of a car compared to a more flattened decline of loan balance.
  • Option to Purchase & sell to pocket additional equity if it the current conditions still exist after 3 years.

Just the few i can think of on top of my head.

Edit -

  • No risk of loss of value if the vehicle is involved in an accident.
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One thing that makes me chuckle about all these “lease to buy” people forecasting their future profits is that it just takes one little thing that’s out of your control to throw all of it out the window. Just ask @NATO about what happened to him the other day with his Jeep. One mistake by you or a careless driver can leave you with a car worth thousands less than your buyout. If you want to lease, do it with the intention of getting the best possible value for the here and now, unless it’s a rare instance where high lease incentives make for a good case to buyout the car immediately after you lease it.

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Always be prepared to be stuck with your lease, because life WILL happen. In this case, a Jeep Wrangler aint so bad :relieved:

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Since the OP lives in California, why not get the maximum value and get the RAV4 Prime AWD PHEV ?

I have been looking into that model to replace/upgrade/add onto my current Honda PHEV which has been amazing (single driver carpool / HOV exemption sticker, $7500 fed credit, $3000 state credit, $1000 utility rebate)…

Looks like Toyota currently is not passing the $7500 fed credit when you lease so I would look into a purchase as you can claim the $7500 tax credit and still get all the benefits of a EV/PHEV/Fuel Cell car…

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Aren’t dealers in CA asking $5-10k over MSRP on these right now, erasing any and all chance of it being a decent value proposition?

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Great points, friend knows more about cars and leasing than me. has leased 3 audis. but yeah totally understand that nobody really can predict what the market is going to be like (which is why i was assuming or preparing for the worst?)

Yeah the big issue is like what you said about getting something ridiculously overpriced like this for a short term of 3 years. I think this is my major issue I need to rethink. It’s difficult because maybe im making the wrong assumption that going after other cars is likely going to yield similiar unfavorable conditions like, everything is overpriced, and less popular vehicles will definitely have lesser resale value later?

Rethinking the Rav4 thing definitely. and your tip about recoup fuel savings- i keep seeing this a lot so i guess that means for a 3 year ownership, having a hybrid isnt worth the extra premium against the cost of gas. (in this case, not just the difference of $2500 for the hybrid but the markup and difficulty of getting one in these times)

thank you for the feedback, v helpful info for me to think about

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The math here is usually pretty easy to do with reasonable accuracy. Just compare total lease cost and add in total expected fuel costs. You’ll see if there’s a break even point or not.

In some areas, there are extra benefits though, like HOV stickers, that offer a much higher value than just the fuel savings.

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super no0b - sorry what do u mean exactly by “Transfer the risk to the bank.” and “No Risk of being underwater/negative equity compared to outstanding loan amount”

Aren’t I at risk of being negative equity no matter what bc im buying or leasing a car right now, and its highly not likely that cars will appreciate more than now in 3 years?

Are payments lower for lease, for some reason im thinking financing it actually is going to lower the payments slightly esp if i down (which i know i should not do if i lease).

Thanks for the thoughts!

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I need to do this, i have not calculated that yet. good point

also expected fuel costs def makes sense to do to compare the costs of a rav4 and rav4hybrid.

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The bank holds the risk of greater-than-expected depreciation, be it due to market conditions, damage to the vehicle, etc. When you get to the end of your lease, you have the option to just walk away. If you own it, at the end of 3 years, you’re stuck holding the bag. If the vehicle holds its value better than expected, you always have the option to buy it out and resell and capture that equity.

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I think you should spend some time reading the Leasing 101 thread just to get an understanding of how the basic of leasing work.

But just to give you some “Quick” summary,

When leasing (assuming No Downpayment), you are only liable for the total lease payments + any excess wear & tear if you rough up the vehicle.

When leasing, the Finance company is purchasing the vehicle & “renting” it to you. So the Finance Company is the title holder thus assuming all the risk associated with owning a vehicle.

Compared to buying, you are purchasing the vehicle & assumed all the risks of ownership including, loss in value for any reason.

if done right, lease payments should considerably be lower than the financing a vehicle.

Also, are you comparing same terms for financing & leasing? there is a much deeper debate related to the depreciation curve which might muddy the water, we can dive into them after you read up on Leasing 101 articles.

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Rav4 Hybrid and Rav4 Prime will hold its value much better than the gas version based on historical data.

Lease programs are very poor on these so a lot of people are purchasing instead.

I am at MSRP or close to MSRP on all Rav4s if you want a quotation

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Remember you need to owe at least $7500 in federal taxes to capture the full amount. Also in CA the rebate is $1500, and SCE has a waitlist for the utility rebate.

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Yes, must have $7500 tax liability to claim the entire amount.

As for state monies most recent RAV Prime: $1500 from CCFR and $1000 CVRP = $2500 total.

When I got my 2018 Honda Clarity PHEV on lease, I got: $10,500 manufacturer cap cost reduction, $3000 dealer discount, $2000 CVRP, $1000 SCE utility, and HOV/CAV single occupant exemption stickers.

Plus the 220V Level 2 charger was installed free by the city.

Looking at the RAV4 Prime but Toyota keeping the $7500 lease money is too greedy…

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Toyota offers a 0.00001 Money factor in lieu of the $7500 rebate on the Rav4 Prime lease. Obviously the $7500 would be preferred

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Ah, that explains the super low (almost free) MF that TFS offers in lieu of the $7500 - thanks for the clarification!