Doesn't the "hybrid premium" only apply if you pay in cash?

[xwfilm]

Hello,

I'm new here and considering a Prius purchase. Forgive me for this may be a stupid and obvious question. I've read a lot about the so-called "hybrid premium", where the extra cost of a hybrid vs. equivalent ICE car is recouped in however many years due to fuel savings. But with the Prius, doesn't this concept only apply if the car is bought with a full cash payment?

Let's assume you buy a $23,000 Prius vs. a $18,000 Camry. You like to drive a lot. Let's say the Camry costs you $2000 in annual fuel cost vs. $1000 for the Prius. So after 5 years the two cars cost you the same, depreciation and other expenses aside. But if each car is bought with 5 years of financing, you would essentially be buying the same car off the bat and the premium would be moot. True, assuming 6.5% interest for both, you would be paying about $900 extra for the Prius in interest charges over 5 years. But that's only $15 a month (a minor cost among other variables) and could be overcome depending on how efficiently you drove.

Obviously this only works with the Prius because it's "premium" is about 5 years (it won't work with say, the LS600h, whose premium might be measured in centuries). So does the Prius even have a "hybrid premium"? Or merely an "interest premium"?

[bat4255]

We just went through that here. This is the first new car we bought in 30 years, and we had the means to pay cash. We did not, we financed @ 6.05%. The reason was our CD's were making an average of 4.8. Calculating conservatively @ 4.5 % on 24K compounded
over 5 years, we will Earn............ $5,908
Financing interest, we will Pay.....- $4,172
So in reality we saved .................$1,736
or almost $29 per month

So if you figure it that way, Cash can cost more

[Mawcawfee]

$18K nets you a stripped Camry base model with ugly steelies and sparser safety equipment. $23K nets you a fairly-well optioned Prius with package HG and all the safety equipment. A better comparison with the $23K Prius is a $19.7K Camry LE with option VS (stability and traction control). That puts your $15/month difference closer to $10.

But the comparison is still between two vastly different vehicles, in terms of technology (+1 Prius), overall comfort (+1 Camry), and handling (wash, personal preference). The Camry gives you a floaty 5-passenger mid-size sedan with near full-size interior volume. The Prius gives you a stiffer 5-passenger compact hatchback with mid-size interior volume.

Prius reliability as of late has been stellar. Camry not so good overall. But every vehicle is unique and has its own individual flaws, so your mileage may vary greatly depending on the luck of the draw.

Not sure if that helps, since it all depends on your situation and needs. Cheers!

[donee]

Hi All,

Even with a cash purchase there is lost interest. Money a bank would pay you to keep the money on account in savings.


Right now the gas costs exceed the money the bankers would give you if you buy something cheaper. The Prius cost say $3K more than a similar car (G6 4 cyl, Camry with options, etc). At 12 K miles per year, and $3 yearly average per gallon, and 20 mpg (45 versus 25 mpg in agressive metro driving with 30 minute commute times) better than the alternate, that is $640 savings a year. What banker is going to give you 21 % interest on that $3K ? So its makes sense to get something that saves gas as well as the Prius, for as little extra as the Prius costs.

This is not real accounting, because it does not include depretiation of the principle (the extra $3K). But the difference between a Prius and the similar alternate wont be that much different in this regard. Remember people buying used cars know about brakes, starters and alternators too.

[Bohous]

I didn't exactly follow your logic but I wanted to pile on by saying that one of the reasons we bought the Prius when we did is that our bank was offering a $4.99 APR on hybrid loans. Even with good credit the best we were doing on our old car was around 7%. We also purchased a low mileage, used Prius so the "premium" is more difficult to assess but I feel we will hit the "break even" point sooner than those who purchase new.

Also, like bat4255, we could pay off the Prius with what we have in savings but the interest we gain in our ING account makes what we pay in interest for the loan basically a wash.

[onlynark]

film: no, you are still paying off the 18k vs 23k, but now the time it takes to recoup the savings in a prius are longer considering you are paying even MORE money for the prius because of the interest.

bat: I would DOUBLE check that thats correct. First, you are not considering the fact that you need to pay taxes on that interest, which would be on the order of 40-50%. Second, you might think that the interest you pay monthly goes down as you pay off the car.....you might want to double check that as well. I thought the same thing, until I kept getting a bill with the same amount of interest.

[galaxee]

Originally Posted by onlynark

you might think that the interest you pay monthly goes down as you pay off the car.....you might want to double check that as well. I thought the same thing, until I kept getting a bill with the same amount of interest.

depends on the loan you get, ours does go down each month. we paid really heavy on ours early, literally every penny we could scrape up. glad we did, since now we're falling back on that savings in interest. our monthly interest has decreased a lot- this year's total interest to date is lower than the first 3 months interest we paid...

in this kind of loan, as far as savings go, it's almost useless to stretch your finances pay off the last couple months' payments early.

[qbee42]

There isn't any one right answer. It all depends on your financial situation, and what sort of loans and investments are available. If you have high return investment options, then that makes the cost of cash very high. If you have poor investment options, then cash becomes cheaper. A high tax bracket will yield different results than a low bracket. If you want an exact answer, then you need to factor in all of the variables, some of which are impossible to know until after the fact.

Tom

[onlynark]

Originally Posted by galaxee

depends on the loan you get, ours does go down each month. we paid really heavy on ours early, literally every penny we could scrape up. glad we did, since now we're falling back on that savings in interest. our monthly interest has decreased a lot- this year's total interest to date is lower than the first 3 months interest we paid...

in this kind of loan, as far as savings go, it's almost useless to stretch your finances pay off the last couple months' payments early.

yeah, I am not an accountant. Thats I suggested he double check that his interest IS going down every payment. I got my loan from the dealership at 2.9%. The bank I am with is about 5%. Since I have to pay taxes on the interest, it doesnt make financial sense for me to keep paying the 2.9% interest for the car.

[daniel]

The concept of the "hybrid premium" is based on the assumption that the hybrid drivetrain costs more than a conventional drivetrain. However, when a vehicle is not available in identical trim lines, one hybrid and the other conventional, then it's difficult to make a cost comparison.

A Jaguar costs more than a Civic. A Rolls costs more than a Chevy. And a Prius costs more than a Yaris. So why does anyone insist on talking of a "hybrid premium" as though you were not getting something substantial for your money?

Consider what you get with a hybrid:

1. Reduced fuel costs.

2. Greater reliability (mechanically the hybrid drive train is simpler).

2a. Never need a transmission job (since there isn't one).

3. Greatly reduced pollution.

And what you get in a middle-trim-line Prius that you don't have in most of the cars usually compared with it:

4. SKS.

5. Side air bags.

6. VSC.

7. More interior room.

The Civic hybrid may have a hybrid premium compared to the conventional Civic. But I contend that what you get in the Prius, even without considering the fuel savings, is worth the money and that there is no "hybrid Premium.

Yes, a Prius costs more than a Corolla. But it's a much nicer car. I've driven a Camry. I liked the Prius better. I contend that the Prius is worth more than a Camry, and that in the case of the Prius, the "hybrid premium" is a myth.