With rising gas prices, consumers are running in droves to give up their SUVs and extended-cab trucks in favor of small, hybrid cars. Sticker shock is enough to drive consumers back to the dealer, but is it really worthwhile to give up your vehicle in order to save money on gas? Consider these important costs:
You may have to pay a prepayment penalty when you turn in your large vehicle.
Many lenders charge a prepayment penalty for paying a loan early. Depending on your lender, this prepayment penalty can range anywhere from a few hundred dollars to a few thousand. You must figure that prepayment penalty into the cost of trading in your car and owning a new vehicle, so add a few thousand dollars to your new car’s pricetag. If you have a $3,000 prepayment penalty, figure in an extra $50 per month for the next five years over the life of your new car loan.
Hybrid vehicles cost more.
Depending on the car you’re looking at, hybrid vehicles cost anymore from $1,000-$8,000 more than their standard counterparts. The cost of manufacturing hybrids is still higher than standard vehicles, and manufacturers pass that cost on to the consumer. But don’t think of it in simple terms of “I’ll spend $1,000 extra on gas in the next two years, anyway,” – you’ve got to figure in the fact that you’re paying interest on that thousand dollars for the next five years of your new car loan. If you get a car at the high end of that range – one that’s $8,000 more than the standard version – you’re paying an extra $150 per month just on the increased price.
Car insurance isn’t a static number.
Car insurance varies depending on a lot of factors, but a general rule of thumb is that newer vehicles cost more to insure than older vehicles. If you’re trading in your 4-year-old vehicle for a brand new car, you can count on paying more for car insurance. A middle-aged female in a low-cost state can count on at least $50 per month price increase. A male under 24 in a high-cost state may pay as much as $150-200 more per month, depending on the vehicle. That adds up.
How much do you spend in gas?
Smaller vehicles still use gas, so making the switch from a large vehicle to a small vehicle may not yield the gas savings that you expect. Depending on the size of your gas tank and your new car’s mileage, you may save anywhere from $20-$40 per fill up. If you use a tank of gas per week at the high end of that range, your savings might be worthwhile if you don’t spend a lot on prepayment penalties, a more expensive vehicle and car insurance. If you fill up twice a month and you’re only saving $20 per tank, your cost savings on gas will not pay for your expenses over the life of your new vehicle loan.
Think twice before you give up your large vehicle, and do the math.
-Money Maven
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