Tag Archives: saving money on trading a car

Saving Money on Gas – Sort of…

Sometimes we really do trip over a nickel to pick up a penny. We think we’re saving money, or interest, but we don’t always stop and do some easy math first.

Last week, someone shared with me that they’re really happy they finally purchased a much more fuel efficient car. They paid around $15,000 for a new car that now gets way better gas mileage. Well – not so fast. The logic makes sense when gas is around $1.20 a litre, but does the math make sense? Is this family really going to save some big bucks?

Let’s look three years out. In three years, this new vehicle will have depreciated to around $9,000. That’s a loss of $6,000 right off the top, based on averages from Consumer Report and Edmunds.com. But what about the fuel savings?

Someone driving an average of 20,000 km a year going from 15 mpg (15.7 l/100 km) to 30 mpg (7.8 l/100 km) should save some big bucks, right? At 30 mpg, driving 20,000 km a year, it’ll be $5616 in the gas tank over three years (1560 l x 3 years x $1.20).

That old car at 15 mpg will cost $11,300 in gas (3140 l x 3 years x $1.20). The saving is $5,688. That doesn’t equal the depreciation of the new car! Yes, the new one is under warranty, yes, that family may keep the new one for a lot longer than three years. But make sure that you’re making an informed decision with five minutes of easy math.

In this case, my friends’ feedback was that he wouldn’t have done it – if he’d have known. He did pay cash, because this math doesn’t include any interest over the three years, if the car is financed. That would add another $1,100 to the cost of ownership. My suggestion would have been to buy a $5,000 to $8,000 used vehicle with the good gas mileage. An older vehicle has pretty much depreciated out, so the savings in the tank are real, almost from the start.