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Archive for July, 2008

Is that Hybrid Worth It?

Friday, July 4th, 2008

Be sure to check your math before trading in your car for a hybrid                 


With gas prices inching past $4 per gallon, you’re probably cursing that thirsty SUV or turbocharged roadster in the driveway. But would purchasing a more fuel-efficient car actually be worth it? We’ve simplified things and done the math for you — but the answer is far from simple. In Pictures: Are Hybrids Worth It?Because hybrids cost more than gasoline-powered models, it’s not necessarily cost effective to buy one, even when taking into account the money you’ll save on gas. But, if fuel costs continue to rise, the gas savings will make up the price difference — right? And what about conventional gasoline-powered models … is it worth it to go for the smaller, fuel-efficient vehicle instead of the one you have your heart set on? Keep reading to find out.

Do Try This At Home
We’re using an easy formula so that you can plug in your own figures. First, take the number of miles you drive in a year (we’re using 15,000, which the EPA says is average) and divide it by the car’s combined fuel economy (available at to calculate the number of gallons you’ll use in a year. Then, multiply that number by the cost per gallon (we’re using $3.96, the national average at press time, according to AAA) to calculate how much you’ll spend on gas in a year. Do these first two steps for each of the two models you’re comparing. To find out how many years it will take for a hybrid to pay for itself, divide the extra money you would spend buying the hybrid by the extra money you would spend on gasoline for the non-hybrid — et voila!

To Have and to Hybrid
Based on today’s gas prices, the Mercury Mariner Hybrid makes the most financial sense if you’re deciding between a hybrid and its gasoline-only counterpart. The base model starts at only $1,750 more than the conventional Mariner and should pay for itself in gas savings in just a little over two years. The Saturn VUE Hybrid and Ford Escape Hybrid will each start earning their keep in about five years.Hybrid sedans have better gas mileage than hybrid SUVs, but the sedans cost a lot more than their gas-only counterparts. For example, the Honda Civic Hybrid’s 42.2 mpg average fuel mileage will save you $600 per year, but its base price is almost $7,600 more than the conventional Honda Civic. You would have to drive the Civic Hybrid for at least 12.5 years to start seeing a return on your investment.Of course, we can’t forget the most popular hybrid — the Toyota Prius. Compared to the Honda Accord, a midsize gasoline-only sedan that costs a bit less, the Prius should take less than a year to make up for the price difference and will save you an additional $1,000 in gas costs.According to our calculations, the worst hybrid values are the GMC Yukon Hybrid, Chevrolet Tahoe Hybrid and Chevrolet Malibu Hybrid, which will each take at least 16 years to earn back the extra dollars they cost. In fact, the Yukon and Tahoe Hybrids cost nearly $15,000 more than the conventional models. The Malibu Hybrid will only save about $168 per year on gas, an increase that won’t easily make up for the hybrid’s nearly $2,800 price jump.

Conventional Costs
A lot of consumers are looking at fuel-efficient gas-only cars to save on gas. While that’s a good strategy, it pays to be realistic about how much you’ll actually save. Sporty drivers may be thinking twice about buying that costly BMW 3-Series and considering the 32 mpg MINI Cooper instead. The MINI will save you 10 miles per gallon, which translates to about $786 per year or $15.13 per week. Just make sure that $15 a week will make up for the MINI’s much smaller interior and cargo area.

You may also be considering dropping a large SUV for a midsize model. Opting for the Honda Pilot instead of the Chevrolet Tahoe will save over $478 in fuel per year. Still, the annual gas savings comes out to just $9.20 per week, which may not be enough to justify trading down. Likewise, the all-new Smart Fortwo’s excellent 36 mpg average fuel economy saves $311 per year in gas compared to the Honda Fit. However, the yearly gas savings only translates to about $5.99 per week, which may not be worth the trade-off — especially when taking into account that the Smart requires premium fuel.

Even when you think two cars are similar, it can still pay — literally — to take a closer look. Choosing the Honda Civic over the Honda Accord will still get you seating for five and plenty of convenience features. But the Civic will only save $273 per year on gas — $5.25 per week — so ask yourself if it’s worth losing the Accord’s sportier performance and nicer interior.

The Big Question
So, is going green worth it? The answer, as you may have learned by now, is that it all depends on what car you’re buying. The key is to choose wisely, consider your options carefully, and always take time to do the math.

Hybrid Avg. MPG Price Diff. Ann. Gas Svgs. Years to Pay Off
Mercury Mariner 32.2 $1,750 $772 2.3
Ford Escape 32.2 $2,740 $560 4.9
Saturn VUE 28.15 $2,920 $572 5.1
Lexus RX 400h 25.65 $3,880 $618 6.3
Nissan Altima 34.1 $6,840 $892 7.7
Toyota Highlander 26.1 $6,033 $594 10.2
Toyota Camry 33.45 $6,630 $554 12
Honda Civic 42.25 $7,590 $601 12.6
Saturn Aura 27.6 $2,395 $168 14.2
GMC Yukon 21.45 $14,700 $886 16.6
Chevrolet Malibu 27.6 $2,795 $168 16.6
Chevrolet Tahoe 21.45 $14,960 $886 16.9

Lease or Buy?

Thursday, July 3rd, 2008


Car leasing is a lot like renting an apartment; you pay a monthly fee to use it but don’t own it — and aren’t making payments toward ownership. The leased vehicle remains the property of the lessor — the company that issued the lease.

As with an apartment rental contract, car leasing will have a fixed period — typically two or three years. You’re obliged to make monthly payments for the length of the contract. While you can get out of the lease before then if you want to, there will typically be extra costs — for example, an “early termination charge” — typically spelled out in the car leasing contract you sign. And as is often the case with renting an apartment, you’ll likely have to put down some cash as “security deposit” at the lease inception. This money will be used to pay for any damages to the vehicle — such as door dings, stains on the seats, any needed service work, etc. — when you return it at the end of the car leasing term.A big advantage of car leasing is flexibility. You aren’t making a long-term commitment. Typically, car leasing is for a relatively short period, 2-3 years being the norm. The average new car loan, on the other hand, is five years. When the lease period is up, you can simply bring the car back and walk away. Or you can buy it if you like by paying off the remaining balance — called the “residual value” — which you’ll negotiate in advance at the time of lease inception.Or go shopping for a new car — or no car at all.

You have many choices.

Also, since you are only renting the car, your total cash outlay should be less. You won’t have to make as large a down payment (a security deposit and the first month’s payment are the typical initial out-of-pocket fees associate with car leasing) as you would if you were buying. And monthly lease payments are almost always less than payments would be if you bought the car. That means you’ll have more money left over to spend on other things.Or, if you prefer, you can “afford” to drive a more expensive car when you lease, since the monthly payments will be comparatively lower. This is one of the biggest single attractions of car leasing for many people. A car (or truck) that might cost you $500-$600 per month to buy might cost $100 per month less with car leasing.Another nice thing about car leasing is that you’re always driving a new or nearly new vehicle. And of course you don’t have to worry about the potentially expensive repair and/or maintenance problems that inevitably crop up as a car ages — and gets out of warranty. The leased car will typically be under factory warranty for the duration of the lease — and car leasing contracts often have add-on provisos that cover routine maintenance, such as oil changes, etc.

Car leasing may also have tax advantages for you — but this is something you’ll have to ask your accountant about. In the past, most people who did car leasing were those who used their vehicle for business, such as realtors — and who therefore could claim deductions for car leasing not available to those who purchased them outright.

Car leasing had the additional attraction of freeing up assets for investments and so on that would otherwise be locked into a depreciating asset — the person’s car or truck.There are downsides to car leasing, of course. Since you’re only making what amount to rental payments each month, you won’t have anything tangible to show for your money at the end of the lease. If you spend, say, $12,000 on car leasing payments (about $450 per month) over two years, that money is gone forever.A person who buys his vehicle, on the other hand, has the comfort of knowing that one day, it will be “paid for” and — assuming it is still in good shape at that point — will provide “free transportation” until it breaks down or the owner decides to get rid of it.

In addition, a person who owns his car has equity (cash value) in the car or truck. Even though it will continue to depreciate with each passing year, so long as it’s still serviceable transportation, it will always be worth something. That value can be used as a trade-in; or the vehicle can be sold privately to help raise money to pay for a new one — or for some other need.

The person who opts for car leasing must start from scratch every time.There’s also the mileage issue. If you decide on car leasing, your contract will typically stipulate the maximum number of miles you’re allowed before the end of the lease. If you exceed that figure, it can get expensive. Per-mile charges over the stated maximum listed in the car leasing contract are often exorbitant — so if you drive more than the allowed miles in the contract annually, leasing could turn out to be more expensive then you thought.The person who owns his car, meanwhile, can drive it as much as he wants, and do pretty much whatever he feels like with it, too. He can swap out the stereo, add different wheels and tires, change the exhaust system — whatever. Do this with a leased car and you’ll have to pay whatever if takes to put the car back the way it was. If you own your vehicle, the inevitable door dings and dents — as well as coffee stains on the seat — can also be shrugged off.

People who lease their vehicles, on the other hand, can expect to be charged for every nick, tear or spill at the end of the lease. The cost of these repairs will be deducted from the security deposit.

Car leasing is also more complex than buying so always closely read — and be sure you understand — every proviso of the lease contract before you sign. If you’re unclear about anything, get expert advice — or walk away.

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