With gas going for $4 a gallon and up, you may be thinking of swapping a big car or SUV for something more frugal. Here’s what to consider:
- Will gas savings offset the depreciation of a new car? The answer is usually no, unless you’ve owned the old car for several years. Depreciation accounts for almost half the cost of owning a car over the first five years, with the biggest hit coming in the first few years. So trading in your car early smacks you with a double whammy: You’ve paid the biggest chunk of depreciation on your old car, and you’ll pay it again on your new car.
- How much size can you sacrifice? Fuel-efficient vehicles are often smaller than gas guzzlers. If you can’t fit everyone you need to carry, what’s the point of trading in?
- How much gas will you actually save? We’ve found in our testing that real-world overall mpg is often less than the EPA highway mileage figure that carmakers advertise.
Bottom line
Switching to a frugal vehicle may be a decision of conscience rather than one of cash. It usually makes financial sense to keep an old car for its natural life, then change to a high-mpg model. But if you swap to a high-mpg used car, you miss the depreciation costs of a new car, save more money, and have a greater choice of vehicles for the price.
By the numbers
Keeping an older car can be cheaper. The figures below assume the new cars were bought with five-year loans at current interest rates; the Explorer was used as a trade-in; the older cars were bought with 15 percent down; and gas cost $4 per gallon.
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