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Where Money Really Does Grow on Trees
Jan 26, 2010


You have been driving your gas guzzling vehicle for 5 years or more, and each time you go to the gas pump it is another $65.00 to fill up.  All your friends and neighbors are on the bandwagon of energy efficiency with new hybrids and you are wondering how you can get on the bandwagon too.  Fuel efficiency for personal transportation does not come without a price that can significantly impact your monthly discretionary income.  If you have a cash surplus to purchase a hybrid vehicle then by all means go for it.  But here are a few thoughts about how to have a new perspective  and fall in love with your gas guzzler again from a personal economic viewpoint.  Is your car paid for or close to being paid off?   If yes then read further.

Let say you your gas loving vehicle gets 15 miles per gallon of gas, with the national average gas price at around $2.75 per gallon, it costs around 18.33 cents to drive one mile.  Let’s futher assume you drive 1,000 a month, so the cost in gas alone for you monthly is $183.30.

Now let’s figure out that new car you have been eyeballing the past several months.   To drive it off the lot with tax is $20,000.  (Can you really buy a new car for $20,000 these days?) Oh well let’s assume you can to continue this exercise.  A 5 year car loan for $20,000 at the national car loan interest rate of about 6.5% will generate a $392.26 monthly payment and you will still need to purchase the gas.  Using the same methodology as above, we will assume your new car get 35 miles to the gallon.  Now it will cost you 7.85 cents to drive that mile or $78.50 per month for 1,000 miles.  Petty cool huh….. you have now reduced the cost to drive a mile by more than half than the cost of your dear gas loving car.  You are going to save $107.50 in gas alone each month.

This is where one can get in trouble if you really are not in a financial position to get a new fuel efficient car.  A 5 year term car loan is a long term committment.  So you better love the vehicle.  The next closest thing to purchasing a vehicle is purchasing a home or getting married which neither should be done without thoughtful consideration and soul searching.   The new vehicle loan terms are 5 years at 6.5%, which equates to a $392.26 monthly payment. (Don’t forget 5 years/60 months)  There is now a close to $400.00 monthly car payment but you have the gas savings $107.50.  The math is easy.  You are going to have a $284.76 out of pocket expense to drive in style.  If cash flow is not a problem then your ready to move on to a new fuel efficient ride.  But if you don’t have this monthly cash discretion the next time you crank up your car remind yourself I have no payments.

Photo Credit: Jason McHuff

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Posted Under: Credit & Debt


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