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

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

 

$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!

 

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.

 

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.

 

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.

 

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.

 

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

 

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.

 

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.

 

The tax thing is true, and I had not factored that in. In my case, it's closer to 25% so 25% of roughly 6K is $1,500. We are still saving about $260.

The other option would be a home equity load. My bank offered interest at 6.5%, then the interest is tax deductible. That option is still on the table.

The interest to be paid, was not computed. It is the total interest charges due, that were on the contract at time of sale.

 

(everything daniel said)^2

I bought the car for low emissions only. I don't think I even considered the fact that I would be getting stupid-crazy gas mileage.

So, I got the low emissions.

Mileage is merely icing on the proverbial cake.

 

By using finance over 5 years and paying the monthly premiums using salary sacrifice although my monthly payments are $520 because we pay the payments by reducing pre-tax income the cost to us in after tax earnings is about $364.
$364 per month X 60 payments over 5 years = $21,480 in after tax income so the cost of the car in lost earning is about $3500 less than the cash purchase price of $24,900.

Normally if using pre-tax income to purchase a private car the employer would need to pay fringe benifits tax however my wife works for a not for profit hospital and not for profit hospitals are FBT exempt! A good thing to as FBT is charged at the top tax rate.

 

Daniel has summed it up nicely.

Think of the hybrid as being a "trimline" for a car. You would sound silly going up to a salesman and asking the time it takes to pay off the XLE premium if you were considering purchasing an XLE vs an LE. So why would you do the same comparing an Camry Hybrid vs a Camry XLE?

You can evaluate your financial status and figure out how much you want to spend on a car over the lifetime of the car and make an informed decison from that.

 

How do you figure that ther IS a premium. NOT gettin a hybrid means you're dollars are buying LESS. The poor slobs who don't get it, are the ones who are trying to tell you are paying a premium.

 

How can there be a "Hybrid premium" if there is NO OTHER CAR directly comparable to the Prius?

 

Here's another perspective on this alleged "premium" - assuming there is an additional cost to the consumer for a hybrid drivetrain vs a conventional one ... I for one am happy to pay it if it in turn is spent in further research into better, more efficient drivetrains ... A la Toyota's research into lithium batteries, plug-in technology and the next gen Prius which let's hope gets 2x the mpg than current models...

...at which time I'll turn around and AGAIN gladly pay the so-called premium.

So hopefully, 10 or 15 years in the future, when Priuses and similar vehicles are getting 100mpg+, and gas costs upwards of $5 per gallon or more, I can say to my son... I am glad to have done SOMETHING, small though it was, to help your generation.

 

Why are we so insecure that we have to pick pennies in justification of why we bought our cars? I had the money and I wanted a Prius because I was so impressed with my 2001 Prius (which was a gift). So I bought a 2006. Now I'm considering whether I'll sign up for a 2009.

~ dan ~

If you can afford it, you don't have to justify it; just buy and enjoy.

 

Hi James...,

Well, you get what you pay for. There is value in buying a Prius, as you go to a gas station half as much, and spend half as much for gas. And do not have to spend money on starters, alternators, and brakes. Why shouldn't that cost more?

Since this thread was started several years ago, the used Prius market has blossomed dramatically. I heard one guy was looking at a 2008 Prius, with 30 K for $12K - that is a fantastic price on a car that will last at least another 120K miles.

So, in reality this is not an issue at all any more...

 

I agree completely. So much of the decision is completely subjective to what one perceives as having value anyway. In my case, not only can I feel that I am doing what I reasonably can to minimize fuel consumption, but I also get to drive a vehicle that is arguably THE BEST at what it is designed to do (how many owners of much fancier vehicles can claim that?). These two factors alone give me a greater amount of personal satisfaction than any other vehicle I have owned.