Monday, 4 May 2015

You're standing at the gas pump, watching the dollars pile up as you fill the tank: $65 for a week's worth of gas.

It gets you thinking about trading in your vehicle for something more economical. Should you? There are plenty of reasons to get a different car, but saving money probably shouldn't be one of them. We'll show you why.

Why depreciation matters so much

Putting gas in your tank is only a small part of what it costs to own a car. The biggest cost is what's known as depreciation.

Depreciation is just a big word that means your vehicle loses more and more value on the used-car market over time. That becomes a problem if you're trying to sell or trade in your old car or a new car with the hope of pocketing some cash. If the car you want to buy costs $25,000 and your car is worth $10,000, you'd have to save more than $15,000 in gas costs to come out ahead.

Analyzing the payoff

How long would it take for you to break even by trading in a gas hog for a mileage champ? It's not too difficult to figure out. You just need a calculator (which can be found on numerous online used car sites) and a few numbers to plug in. You need to know the approximate value and gas mileage of your current vehicle and the one you'd like to buy.

Let's say you're driving a pickup truck that gets 14 mpg and trading it in on a 2013 hybrid that gets 50 mpg. Your truck is worth about $13,300, and the hybrid sells for $27,900. So you're shelling out $14,600 to get the economy car, not including taxes, fees, and licenses.

Figure that gas is $4 a gallon and you drive 1,250 miles a month. Each month, you'll save $257 in gas. That sounds good, but it will still take you 57 months — almost five years — to break even.

What if you want to start saving money quickly? You can buy a cheaper car that isn't quite as efficient and get a faster payoff. However, the monthly savings over the long haul won't be as great as with the more expensive — but more efficient — model.

Is it really worth it?

Lower charges at the pump aren't the only monetary factor when considering a trade-in. Besides taxes, fees, and licenses, there's the cost of a loan itself. So you have not only the cost of the car, but also the hundreds or thousands of extra dollars in interest on the loan.

In addition, a newer car will likely have a higher insurance rate than an older one simply because if it was totaled in a wreck, it would cost the insurance company more to replace it. Of course, if you buy a used car, you may face repair and maintenance bills relatively soon — just a new set of tires can cost $400 or so.

In the end, look at fuel costs as one part of your thinking about getting a new car. You should also consider comfort, reliability, and lifestyle. For example, if you need to haul around much more than groceries, that compact hybrid might not cut it.

If you're already in the market for a car, certainly keep fuel efficiency in mind. But if your only reason to switch is that you want to reduce how much of your family budget is going to your cars, think twice. Maybe the big gas-guzzler isn't so bad after all.