What’s cheaper, buying a hybrid or keeping the guzzler?

I ran into someone the other day who mentioned that they wanted to buy a car that gets better gas mileage. Their current car only gets about 17mpg and that makes for a nice chunk of change at the pump. My first question was “Do you have a payment on your gas guzzler?” The answer was “No.” So let’s ask the question, “What’s cheaper, buying a hybrid or keeping the gas guzzler?” The way I see it , it really depends on several factors which we were not able to explore in our abbreviated conversation.

How much does it actually cost to put gas in the guzzler and drive it? I figure at 17mpg with today’s price of gas it costs $0.23 per mile in fuel. In my world that’s about $2,530 per year (11,000 miles). Lets figure the cost of putting gas in the hybrid at $0.07 per mile x 11,000 miles = $836. Now lets figure the cost of borrowing $21,000 to buy it with a 5 year loan at 5.25%. That makes the total cost of the hybrid purchase $23,922. That’s $4,784 per year just in payments on the new car. So the first five years it costs you $5,620 per year!!!! So after 5 years of driving the hybrid you are $15,450 poorer! At that rate it would take 14 years to break even on the new hybrid. (This does not take into account if the gas guzzler could be sold or traded to recoup some of that money.)

What’s the moral(s) of the story?

  • It almost always a better deal to keep your paid off car rather than buy a new one. Drive your car until it absolutely will go no further all the while paying yourself in a savings account. Saving money minimizes the amount of interest you will have to pay on your next car loan. (Or it will help repair the old car.)
  • Consider buying an inexpensive used car that is fuel efficient. This will payoff much faster than a new hybrid even though the fuel efficiency isn’t as good.
  • When asking for advice about major purchases, ask people who have a proven track record of smart financial decisions.
  • Don’t rush into any kind of new payment. Ever. Under any circumstances. Think about it overnight at the very least.

There are situations where it is beneficial to swap a car. Here’s a little spreadsheet I put together to help you calculate if it’s a good financial decision for you. Download the Fuel-Financial_Efficiency_Calculator.xls Just for fun, check out this hybrid in the works from a California based company, Aptera.

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