Is it worth to buy a new fuel efficient car, will it save money on gas

Since the high fuel prices have hit, the advertisers would've made you beleive that buying a new automobile that is fuel efficient will save you a lot of money. Really! Well lets see, besides the price you pay at the pump, there are a lot of hidden costs associated with owning a vehicle that you might have long forgotten if you've paid of the loans associated with it. In this article I'll try to provide calculations that'll make you see that buying a new scooter or a fuel efficient car will not necessarily save you money for some time to come atleast. For the sake of argument we'll assume the following

  • You own your car & you don't have any loans associated with it.
  • You paid $30,000 for your car & it's current value is $12,000.
  • Your car is 5 years old.
  • Your current insurance premium is about $55, full coverage for a month.
  • You drive 12,000 miles per year.
  • Cost of maintenance is $1200 per year.
  • Lets say the current cost of fuel is $3.96.
  • The fuel economy you get out of your car is 28 mpg.

Based on above parameters, since you drive 1,000 miles a month, you'll need 1000 / 28 = 35.71 gallons of fuel. Which means you'll pay 35.71 * 3.96 = $141.42 for gas each month. Add the insurance premiums & the cost of maintenance, we see that our monthly expenditure on this car is $296.42. Over a five year period the cost of owning this car would be $17,785.20. To say it differently, the cost of driving each mile with this car would be $0.29.

Lets say that you found a car that gives better mpg then your current car(possibly a hybrid), say 40 mpg. On the surface it does seem like this is a better deal, lets analyze this further.

Some assumptions -

  • Cost of car = $30,000
  • Term of loan = 5 years
  • Down payment = $5,000
  • Sales Tax = 8%
  • Based on above, monthly loan payment = $565
  • Cost of full insurance coverage = $125 per month
  • Cost of maintenance - $1200 per year
  • The fuel economy you get out of this car is 40 mpg.

As we did for our existing car, lets see, we need 1000 / 40 = 25 gallons of gas. This means we spend 25 * 3.96 = $99 for gas each month. Factor in the insurance & maintenance & we end up spending $889 a month on this car. Over a five year period the cost of owning this car would be $53,340. And the cost of driving each mile with this car would be $0.89.

I'll admit that if you'd have paid off your car in full at the time of purchase then it would cost you $0.324 for each mile you drive, but don't forgot you're still out of $30,000 which could have earned you interest in a savings account. Assuming your bank gave you a paltry 3.25% interest annually for the next five years, you'd still make $4,875 in the next five years. Add this to your trade-in value & you won't need a down-payment if you buy a car 5 years from now.

If you're in need of a new car then by all means get the one which gives the best efficiency but buying a new car for the sake of saving money at the pump in the end doesn't really save you much unless you'll keep that car for a long period of time.

And one more thing, in case you're wondering that you're not doing the right thing to the environment then think again, by not selling your car you're keeping it out the land-fill & if enough people do that then the companies will need to create fewer cars which in turn will burn less fossil fuels. So keep your old car instead of getting next years model today, you may not look flashy but your wallet will be happy.