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Financing a Hybrid Vehicle
When I discussed my car requirements, I mentioned I'm not interested in gas mileage because I only drive ~3200mi/yr. This provoked an interesting but more general question about when it does or does not make financial sense to get a hybrid vehicle.
The answer turns on the details, so I decided to answer the question by creating a simple spreadsheet so anyone can play with the numbers to fill in what's appropriate for themselves.
The following numbers are relevant:
I filled out the spreadsheet with some reasonable figures for myself:
The spreadsheet asks for the amount you're financing on each vehicle, which for simplicity I set equal to the MSRP (no haggling and 100% financing). The spreadsheet does not incorporate any tax incentives for hybrids, or differences in maintenance costs, etc. It's a simplification.
The spreadsheet assumes you could afford either vehicle, and places the difference in monthly expenditures in a savings account to earn interest. Use the Savings Account Balance column to compare the hybrid vs. regular vehicle purchase. When it's positive (black), the regular vehicle is less expensive. When it's negative (red), the hybrid vehicle is less expensive.
In my case, by the time the loan is paid off, the savings account's interest payments are almost equal to the fuel costs, so it would take longer than the hybrid's useful lifespan for it to be financially appropriate for me.
If I drove substantially more (10,000 instead of 1,200 highway miles per year) and the price of gasoline rose to $10/gal, the hybrid would become economical for me in just over 4 years.
Play with the spreadsheet. See for yourself how difficult it is for the lower spending on fuel to overcome the higher initial price of the vehicle. It's interactive. It's fun.
I originally screwed up the auto loan interest. Sorry. It's fixed now, and I've changed the above comments.
Brian writes on the subject of maintenance: