Getting back to the math
Quote:
Originally Posted by Dunkler
I love you guys! Ok, I will be open with you fellas. I paid $9,900 for this 2007 Honda Fit. Interest rate at 4.99%. It only had 65k miles on it when I bought it. Now it has 68k (give or take). Full coverage on the Fit is $40/mo. I carried liability only on the F150 and it was $23/mo.
SO, do more maths and figure out when the car will pay for itself!
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I forgot the net present value calulations from school so lets make it simple. We're assuming the F150 is parked along side the house and not sold. Any finance types out there please correct the math. Say that $9900 purchase price x 4.99% interest per year is $494/year interest. Say it's for 4 years so $494 x 4 = $1976, add the original $9900 and its $11876 total purchase. Adding the difference in insurance $17/month over the same 4 years is $816 so a cost of aquisition is $11876 + $816 = $12692 over 4 years. Assume after 4 years that the Fit insurance will revert liability only once the 4 year loan is paid off and will be $23/mo like the F150.
After year 4 when the Fit is paid off and the insurance rate drops we'll assume the cost to own the Fit is the same as the F150. Note that the Fit will be cheaper on maintenance and repair but we don't have numbers to assign to that savings.
Now, the cost of the Fit over 4 years = $12962 divided by the estimated savings based on 12000 miles of driving per year at $1450.80 works out to 8.9 years to break even.
Since the insurance will continue after the 4 year period, (but drop by $17 after year 4) it's more like 9 years.
If the F150 was sold for $3000 the $12962 initial 4 year cost drops to $9962. $9962/$1450.80 per year fuel savings = 6.8 years to break even.
Also as mentioned, the cost to maintain will be much less on the Fit so that will further reduce the break even period, but we don't know by how much. It's probably safe to say though that the Fit will begin to payoff at about 6 years or so if fuel prices stay the same.
This exercise shows that spending money on a vehicle to save fuel makes sense,
but only if you are going from a blatant FSP to a real miser. Cost to purchase a vehicle can pay for alot of gas and could make the purchase folly if not done properly. It seems to make the most sense if you are about ready to replace your vehicle anyway and/or drive alot of miles and expect to keep the vehicle for a long time.