Cash For Clunkers Program – What You Should Know Before You Trade In Old Reliable

Cash For Clunkers otherwise known as CARS (Car Allowance Rebate System) is a Federally funded program paid for with American tax dollars even though the products of foreign manufacturers qualify for the rebates as well. It was designed for two purposes;

1) To stimulate the economy by reducing new car inventories and
2) To increase overall gas mileage figures by removing older, less efficient vehicles from service.

There are several things you should know before you decide that trading in a car possibly in need of some repairs and services is right for you.

1) To qualify for the program the vehicle being traded in cannot be more than 25 years old.

2) The maximum credit you can receive is $4,500 but it can be as low as $3,500. It depends on the difference between the gas mileage of the car you trade in and the new car you buy or lease. If the fuel economy of the new car is at least 4 but less than 10 mpg higher than the traded vehicle the credit will be $3,500. If it is more than a 10 mpg difference the credit will be $4,500. For SUVs, vans and pickups (category 1 vehicles) the fuel economy of the new vehicle must be at least 2 but less than 5 mpg higher than the trade in for a $3,500 credit and over 5 mpg higher for the $4,500 credit. For category 2 vehicles the fuel economy of the new vehicle must be at least 1 but less than 2 mpg higher than the trade in for a $3,500 credit and over 2 mpg higher for the $4,500 credit. Category 3 vehicles (known as work trucks; large pickups for example with a bed at least 72” long) don’t have an mpg requirement. They only qualify for the $3,500 rebate and must have been manufactured no later than 2001 and no earlier than 25 years prior to the trade in date.

3) A new leased vehicle only qualifies if it is on at least a five year lease.

4) The program does not apply to new vehicles with an MSRP over $45,000.

5) The credit is all you will receive for your traded vehicle. Since it is being sold as scrap it will have no additional value. You may also have to pay a fee of up to $50 to have it crushed.

6) Although the rebate is not taxed federally, it may be taxed by individual states and localities.

7) The vehicle to be traded must have been registered to the current owner and must have had continuous insurance coverage for at least one year prior to the trade in date.

8) For a new car to qualify it must have a combined city/highway gas mileage of at least 22 miles per gallon. Category 1 trucks at least 18 mpg, category 2 trucks 15 mpg and category 3 the heaviest trucks, don’t have a mileage requirement although they can only be traded for another category 3 or a category 2 vehicle.

9) The vehicle to be traded in must have had a combined city/highway gas mileage of less than 18 mpg when it was new.

10) The vehicle to be traded must be drivable.

11) The program only applies to trade-ins towards new vehicles, not used ones.

Factors of which to be aware:

1) Many new car dealers would give up to $4,500 in trade-in money without the program just to move new cars. So the fact that this program exists doesn’t change anything much except that American tax dollars are once again being used to bail out the world.

2) Foreign manufacturers who are not in the same financial difficulties as the American car companies will reap a good portion of the benefits of the program while only a tiny percentage of American taxpayers will be able to avail themselves of it.

3) Even though dealers are supposed to give all additional rebates and discounts to consumers, that may or may not happen depending upon the individual dealer’s sales tactics so the buyer must beware.

4) It’s only another form of trade in money. If you buy a new vehicle you start the monthly payment cycle all over again for the next 4, 5, or 6 years.

5) Even if you can qualify for 0% financing (if your dealer has that program) that only takes care of the interest; you will still have a hefty monthly payment.

6) Registering a new vehicle will no doubt raise your insurance rates as well.

7) You might be paying out thousands of additional dollars to save only a couple of miles per gallon.

8) Even if your vehicle needs a major repair, like an engine or a transmission, the entire cost to fix it could be less than the down payment or the sales tax on a new vehicle. That would give you back full use of your vehicle without the monthly payments.

In tough economic times like these you may want to think long and hard before signing on to any long term commitment. We know how quickly the employment situation can change. Keeping what you have and investing a few bucks in it might be the most prudent way to go.