First Person: We Are Saving Up for a New Hybrid Vehicle

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I told my husband we couldn't buy another car for at least three more years. But lately, our car has been making troubling sounds. Even if we keep it for our youngest son, we will still need to purchase a new car in one or two years from now.

According to a recent article by CNBC, hybrid cars are the best value for people in the new car market. My husband and I are interested in purchasing a mid-size hybrid vehicle.

Estimating the future cost

Since we won't be buying a new car for another year or two, I need to figure out how much the car we want will cost in the future. In the past several years, it has seemed that the cost of cars has continued to rise. I am estimating we will need at least $32,000 to purchase a new mid-size hybrid vehicle in two years. That means we need to save 16,000 each year to have the cash available.

Taking out a car loan

Even though we may take out a car loan, I still want to have the cash available in case the interest rates on car loans go up in the next two years. I won't take out a car loan with an interest rate that is higher than our current mortgage rate of 2.75 percent. If I can get a low interest rate, I would take out a 4-year car loan, even though some financial experts such as Suze Orman recommend not taking out a car loan with terms longer than three years.

Finding the extra cash

It will be fairly difficult to save up $16,000 a year for our new car purchase. I'll be able to save up $7,200 a year with the money I am saving by refinancing. I was making $1,500 payments toward my mortgage every month. After our refinance, I'll only have to make payments of $900 a month. That leaves me with an additional $8,800 I'll need to save each year. I was spending about $9,000 a year sending my younger son to community college. Now that he is finished his associate's degree, he plans to take off a year or two to work before returning to the university. The timing would be ideal since I could gift him with our old car when he is ready to return to the university to complete a bachelor's degree.

While we would be paying a lot of money for a new hybrid car, I feel as though it will pay off because of the lower fuel costs. I've had several friends and relatives who have told me they save thousands of dollars by driving a more fuel-efficient vehicle. In the case of buying a hybrid car, I may be spending more upfront in order to save more in the long run.

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