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Sell the hummer, buy a hybrid?

With the price of gas rising, more people driving hummers are finding visits to fill the tank an expensive business. It's tempting to think of trading in the guzzler and buying a hybrid. A Toyota Prius, for example, will give you not less than 45 miles per gallon - drive it carefully and you'll do a lot better.

 
   

Better still some of the hybrids qualify for a federal tax incentive. The government may talk big about drilling for oil but encouraging people to buy fuel-efficient cars is a good first step to reducing America's dependence of foreign oil. Check out your own state. Many are also offering a range of incentives to reduce tolls, the cost of parking, and so on. When you add up the savings on gas and in taxes and charges, a hybrid can look a good deal. Auto insurance companies are encouraging the trend with discounts of up to 10%, although the actual discount depends on the type of hybrid you buy. As with all auto insurance, you need to shop around and get as many online quotes as possible before buying.

But before you start looking round the showrooms, take a deep breath. That Hummer (large SUV or RV) is losing its value fast. The secondhand market has collapsed because only a very few buyers want to take on those gas costs. You'll get only a fraction of its value if you trade it in now. So that new hybrid suddenly got a lot more expensive. You'll need a much bigger loan which may be difficult to get at a good rate of interest because of the credit crunch. Once you add in the loss of capital tied up in your Hummer and the increase in borrowing costs, your payback period just got so much longer.

Payback period? If you're buying to make a saving, this is the time it takes for you to realize the saving. In this case, you are probably better holding on to the Hummer. The premiums will fall because the replacement costs are lower on a comprehensive policy. Traffic accidents are less dangerous in something built like a Sherman Tank. Some of the smaller hybrids crumple up in an accident. So don't despair on the auto insurance front. It really may made better economic sense to keep the guzzler than change to a hybrid.

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