With the fuel price at record highs, many motorists may be rushing to sell their fuel-guzzling vehicle and to replace it with a more fuel-efficient car. But you should be careful not to make a costly knee-jerk decision.
If you were planning on buying a car for the first time or replacing your old car, then it certainly makes sense to look at a fuel-efficient car.
However, it’s not a good idea to buy a more expensive car that would put pressure on your finances just to save on fuel costs. If you spend an extra R100 000 on a vehicle that’s more fuel efficient, that will cost you an extra R33 000 in interest, ending up costing you at least R133 000 over five years. This extra amount is unlikely to offset the fuel saving.
Rather buy a less expensive car that is naturally light on fuel.
If you have a car that is two or three years old and will easily see you through the next five years, unless you are planning on trading in for a less expensive car, it may not actually make sense financially. If the car is financed, you will owe more on it that you could trade it in for. The fuel saving may not justify the extra costs.
How much will a fuel-efficient car save you?
Here is how you can work out your cost saving per month:
- Calculate the difference in fuel consumption per 100kms – A
- Divide the number of kilometres you drive per month by 100 – B
- Multiply this figure by the litres you are saving – A x B = C
- Multiply these litres by the current fuel price – C x ZAR per litre – to calculate your monthly saving
Your current consumption is 12 litres per 100km and the new car would be more fuel efficient at 6 litres per 100km. You drive 1 500km a month.
- A = 6 (You will use 6 litres less per 100km)
- B = 15 (You drive 1 500km a month, so 1 500 divided by 100 = 15)
- C = A x B = 6 x 15 = 90
- 90 x R21.90 = R1 971 saved per month
This calculation will obviously vary depending on the extent of the fuel efficiency and number of kilometres you drive each month.
While this example shows a significant monthly saving of R1 971, is this saving worth trading in your car?
Any cost savings should be calculated over a five-year period as that is a reasonable length of time to hold a car.
- Over a five-year period, you would save R118 000 in fuel costs (assuming the current fuel price).
- If you are trading in your car and either buying a car of the same or less value, then you immediately benefit from the monthly fuel saving
- If you need to make up a shortfall between the car you are selling and the one you are buying, the decision depends on whether you are financing or have a cash deposit.
- If you have a cash deposit, remember to calculate the lost interest you would have earned if you left the money in a fixed deposit earning 4.5%. In this scenario, if you paid in R95 000, you would effectively break even over five years as the R95 000 would have grown to R118 000 over five years – the same as the fuel saving.
- If you finance the difference, consider the interest and installments. For example, if you had to finance a R90 000 difference at 10.75% interest, your installment over five years of R2 040 would be slightly higher than the fuel saving of R1 971.
If buying the more fuel-efficient car would see you just break even, that could still be a good decision as fuel prices could increase further and you will be saving the planet by being more fuel efficient.
If the figures do not make sense for you to trade out your car now, rather be more efficient in your driving habits. Don’t speed, keep your tyres fully inflated, and plan your trips more efficiently. Consider lift sharing if possible.
Just remember, when it is time to buy a new car, make sure you take the fuel consumption into account.
This article first appeared in City Press.