Are hybrid cars worth it?

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

Hybrid cars, which combine a gasoline engine with a battery-powered electric motor, are good for the earth because they suck up less gas and spit out less pollution.

But are they good for your wallet?

A hybrid, such as the Toyota Prius, Honda Insight and Honda Civic, costs anywhere from $3,500 to $6,000 more than a comparable conventional car. Despite ultra-impressive gas mileage, you’ll have a tough time making up the price difference at the pump.

And that doesn’t include any additional maintenance costs or the possibility that you may have trouble reselling the vehicle.

On the other hand, you do get a substantial tax break by purchasing a hybrid car.

Gas matters
Let’s start by comparing the gasoline costs of driving a $20,000 Civic Hybrid with a $16,500 Civic LX. The Civic Hybrid with a manual transmission gets an impressive gas mileage of 46 miles per gallon in the city and 51 mpg on the highway. The Civic LX gets 32 mpg in the city and 38 mpg on the highway.

We’ll use city mileage figures for both cars because that’s the mileage estimate most drivers are likely to achieve. Let’s say gas is $1.75 per gallon and you drive 15,000 miles every year.

Will you be able to rack up $3,500 in fuel cost savings with your Civic Hybrid? Not unless you plan on keeping the car forever.

Driving a Civic Hybrid, instead of a Civic LX, will trim your fuel costs by about $250 a year.

After five years, you’d save $1,250 at the pump. After 10 years, you’d save $2,500. After 15 years you’d save $3,750, finally just over your $3,500 goal.

Let’s take a closer look at the numbers.

To drive 15,000 miles in a year with a Civic Hybrid, you’ll need to pump in about 326 gallons of gas. Pay $1.75 a gallon and your yearly fuel costs will run about $571.

To drive 15,000 miles in a year with a Civic LX, you’ll need to pump in more than 469 gallons of gas. Pay $1.75 for each gallon and your yearly fuel costs will run about $821, just $250 more than the Civic Hybrid.

Of course, the more gas prices go up, the more money you’ll save driving a Civic Hybrid instead of conventional Civic.

So let’s say gas prices shoot up to $2 gallon. Yearly fuel expenses with a Civic LX will run about $938 compared with $652 for a Civic Hybrid. That’s a savings of $286 a year. After five years of high fuel prices you’d save $1,430. But you’re still a long way from recouping the extra $3,500 you paid for your environmentally friendly set of wheels. Helping the earth can be hard on your wallet.

Applying the tax breaks

A one-time federal tax deduction of $2,000 may help soften the blow. Any car shopper who purchases a new hybrid through 2003 is eligible for the full tax deduction. A smaller deduction will be available through 2006.

“It’s a laudable attempt by the federal government to get you to buy a fuel-efficient vehicle,” says Bob Trinz, an editor of RIA’s Federal Taxes Weekly Alert.

Just how much the deduction will save you on your 2003 taxes depends on your tax bracket. A hybrid owner in the 35 percent tax bracket would knock $700 off their tax bill. Someone in the 28 percent tax bracket would save $560. A hybrid owner in the 25 percent tax bracket would save $500.

Fuel-efficient tax breaks


tax rate

2003 tax savings

for hybrid car owner


Even a hybrid owner who takes a standard deduction on their taxes will qualify for this deduction.

“You need not itemize to claim this,” Trinz says. “It’s commonly described as an above-the-line tax deduction.”

The above-the line tax breaks are at the bottom of the first page of the long Form 1040. You claim the one for your hybrid car on the line that instructs you to total all adjustments to your income; be sure to write the words “clean fuel” next to your deduction amount.

Some states offer tax breaks to hybrid car buyers, as well, so ask your state’s tax department about hybrid cars. It could save you some serious cash on a state tax bill.

But a lot of car shoppers who would consider buying a hybrid aren’t bothered by the extra costs, according to a recent survey by J.D. Power and Associates, a marketing information and research firm based in Agoura Hills, Calif.

It’s the ecology, stupid
Lots of folks say they would go forward with a hybrid purchase if they could recover at the gas pump just half of the additional cost.

For example, they’d be willing to shell out $3,500 more for a Civic Hybrid as long as they could save $1,750 in gas expenses while they owned the car. A Hybrid owner who drives 15,000 miles a year could achieve that goal after five years with the help of the one-time federal tax deduction.

Why do people seem willing to take a bit a financial hit when purchasing a hybrid car?

“They want to do the right thing for the environment. They want to be seen participating in that effort,” says Thad Malesh, a director of the alternative power technology practice at JD Power.

Thanks to impressive fuel efficiency and squeaky-clean emissions, hybrid cars are much kinder to the environment than traditional cars.

For example, the Toyota Prius is 90 percent cleaner than the average new 2003 model year car, according to the California Air Resources Board. This five-passenger sedan is considered a Super Ultra Low-Emission Vehicle (SULEV). And with a gas mileage of 52 mpg in the city and 45 mpg on the highway, you’ll be able drive quite some time before you even have to think about refueling.

The 2004 Honda Civic Hybrid falls under the Ultra Low-Emission Vehicle (ULEV) category, which isn’t too shabby either. A ULEV is about 50 percent cleaner than the average new 2003 model year car.

And while many 2003 cars fall under this category, it’s tough to top Civic Hybrid’s gas mileage of 46 mpg in the city and 51 mpg on the highway. A Civic Hybrid is about 30 percent more fuel efficient than a conventional, gas-powered Civic.

As for the Honda Insight, this little two-seater is the most fuel- efficient car in the country hands down. Its gas mileage is an impressive 60 mpg in the city and 66 mpg on the highway. Its automatic model, which comes with a continuously variable transmission, has been certified as a SULEV vehicle.

Can you afford a cleaner ride?
Still, as good as these cars may be for the environment, you do need to consider the long-term impact on your wallet. Here’s some financial questions even the most stringent environmentalist should consider before purchasing a hybrid.

Can you and your family afford to spend an extra $3,500 to $6,000 upfront on a new car?

Hybrids by the numbers
Gas mileage
Honda Insight
2-passenger hatchback

60 mpg city

66 mpg hwy

starting at $19,180
Honda Civic Hybrid
5-passenger sedan

46 mpg city

51 mpg hwy

starting at $19,650
Toyota Prius
5-passenger sedan

52 mpg city

45 mpg hwy

starting at $20,480
Source: Honda, Toyota

How long do you plan to keep the car? The resale value of a used hybrid is a big question mark. It’s possible you could take another financial hit when you sell a hybrid car. If you’re not prepared to keep a hybrid car for the long haul you may want to think twice about purchasing one.

Can you afford the repairs? A key concern for long-term hybrid owners is maintenance costs. If you keep a car beyond warranty, you’ll be stuck with the repair bills and they could get expensive.

“At some point the batteries are going to have to be replaced and they’re expensive,” says Larry Webster, a technical editor at Car and Driver. “The cost could be anywhere from $1,000 to $2,000.”

The hybrid parts in a Toyota Prius, including batteries, are covered by an eight-year, 100,000-mile warranty. Honda covers its hybrid systems with an eight-year, 80,000-mile warranty.

So in your ninth year as a car owner, you’ll be on the hook for any hybrid repairs in addition to the car’s ordinary maintenance costs.

Lease or Buy? How much car can you afford? Bankrate helps you do the numbers with our calculators
— Updated: Oct. 13, 2003