If you’re an impulsive person, you make decisions on a whim and usually don’t think about the long-term effects of your decisions. With the current gas price hike, car owners are really considering more fuel-efficient vehicles.
For some consumers though, especially the impulsive ones, they are tempted to just head down to the dealer and trade their behemoth SUV in for a hybrid or a meager four-cylinder. The result? You get way more miles per gallon and it costs less to fill your new car’s tank.
Or does it? What are the other results from this decision? Financially, is it the best move to save money in a tough economy?
Bankrate.com did a great article on this topic. Below is an excerpt from Terry Jackson’s story:
"People thinking of going this route need to take several factors into account.
For starters, your gas guzzler is worth considerably less as a trade-in than it was even six months ago. By some estimates, the value of used sport utility vehicles has dropped more than 20 percent since January.
Even if your current car is paid for, you’re likely to incur new monthly payments on that fuel-efficient replacement.
Finally, it could take years to realize actual savings at the pump when other factors are taken into consideration.
Here’s an example:
Suppose you have a two-wheel-drive 2001 Ford Expedition XLT. According to Edmunds.com, it is worth about $5,700 as a trade-in and gets about 16 mpg in city driving, although most owners of that model know real-world mileage is less than that.
At $3.70 a gallon for regular fuel, it costs about $97 to fill the Expedition’s 26-gallon tank.
To cut that bill, the Expedition owner is looking at a two-wheel-drive 2008 Ford Escape Hybrid, which can likely be bought (assuming reasonable options on board) for about $28,000, plus taxes, title fees, etc.
The Escape Hybrid promises to deliver about 32 mpg in normal driving, double what the 2001 Expedition delivers. A fill-up of the Escape’s 15-gallon tank at $3.70 a gallon would cost about $55.
But what are the real savings?
Assuming you own the Expedition free and clear and use the trade-in value as your down payment — and cover the sales taxes and other fees in cash — the Escape will come with a loan for about $22,300. At current rates, financing for 60 months means a monthly payment of about $439.
So let’s add up the costs for a year:
If you stick with the Expedition and drive 15,000 miles a year, it will cost you about $3,500 to keep it filled with gasoline, assuming prices stay at about $3.70. If they go to $4 a gallon, the bill will be about $3,750.
In the new Escape, your annual fuel bill, assuming the same mileage and $3.70 a gallon, would be about $1,730, a savings of about $1,770 a year.
But the new Escape will cost you $5,268 in payments, not counting out-of-pocket fees and the value of the Expedition used at trade-in.
Even after factoring in the one-time federal tax credit that comes with an Escape Hybrid, swapping a serviceable gas-guzzler for a more fuel-efficient new vehicle is unlikely to provide a financial benefit for five years, when the new vehicle is paid off."
So if your car just died or was totaled in a crash and you absolutely must replace it, it could make sense to opt for a fuel-saving vehicle. For those impulsive car buyers who just hate filling up their gas tank every other day, think twice before trading in, as it could cost you more in the long run.