Chrysler is coming out with an offer maybe too good to resist. Knowing how much gas prices are hurting customer's pockets are giving their new customers the following option: choose a cash rebate ($5,500) or only $3000 cash rebate and the opportunity to pay $2.99 fixed price per gallon of gasoline for the next three years. The program is limited to 12,000 miles per year so how many gallons of gas you get to use at that price will depend on the car you get. But let's say you choose a high mileage car (28mpg, this is the example used in the article), then you can fill up 428.50 gallon of gas per year at that price.
According to this article in the Wall Street Journal, economists expect the price of gas to average $3.45 over the next 12 months. This is the math I came up to help buyers decide which offer is better:
- Choice one: Take $5,500 cash rebate at time of purchase. I am going to assume the buyer applies the rebate amount to lower the amount of their car loan (assumed at $20K), if the buyer took a five year loan at a rate of 6.55%. Then by taking the cash rebate the buyer would save $4614 in interest payments over the life of the loan.
- Choice two: Take a $3,000 cash rebate and the opportunity to fill up gas @2.99 fixed price for 12,000 miles annually. Let's assume the buyer chooses to apply the rebate to the car payment and reduce the size of his/her loan. Then at the end of five years and at a rate of 6.55%, the buyer would save $2516 in interest payments. Let's also assume the mpg for the new car is 28 average and that translates to 428.50 gallons per year. Let's take the average per gallon price as predicted by economists, the the buyer saves $197.11 per year by taking advantage of the fixed gas price. $197 in yearly savings doesn't sound like very much.
Is there a financial expert out there who could convince me otherwise?
Stumble it!
3 comments:
I just don't see how buying a new car saves money. My friend who sells cars says she's been selling a lot of hybrids and I just wondering how people think that's going to save them money when the upfront cost is so much higher than a non-hybrid car. I think people just don't do the math!
I agree Cathy, but sometimes that math can be confusing. Maybe that's why sometimes people give up on doing their homework because they can't wrap their mind around it.
Awesome post!
If you move forward to buy a car, here is a tip:
When buying anew car you should bring a piece of paper to the dealership and make sure you do all the math of the finance calculations yourself. The point is not that they will do the math wrong. The point is you will see exactly how the deal is structured. Do not be afraid to take the time to do this or look like a fool.
Here are five other steps that may save you thousands if you follow them next time you buy a car:
http://www.butasforme.com/2009/03/29/how-to-buy-a-new-or-used-car/
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