Details on Cash for Clunkers

The following is a guest post from Bob Meighan, CPA and VP of TurboTax. For more info on Cash for Clunkers, visit their site.

Driving around in a clunker and ready to move up? Doing so could help the environment and save you up to $4500. Sounds too good to be true? Nope. While there are some caveats and other qualifying restrictions, Congress has rolled out the Cash for Clunkers programs with $1 billion in funding for new car purchases when you trade in your gas guzzling clunker.

I’m using the word “clunker” because whatever car you trade in will be trashed. You won’t get any trade in allowance other than the cash value of the voucher from Uncle Sam. So if your car is worth more than the voucher, it doesn’t make financial sense to participate in this program.

To keep this relatively simple (with taxes, the details can get ugly fast), we’ll look just at passenger cars and SUVs (and light duty pickup trucks). The dollar amount of the voucher is dependent on the fuel efficiency of the new car. For example, if your new car gets 4 mpg or more than the old car, you qualify for a $3500 voucher. 10 mpg or more earns you a $4500 voucher. The rules require that your existing car get less than 18 mpg (combined city/highway). Slightly different rules apply for SUVs and trucks (see chart below).

To prevent abuse (like going to the junkyard to “flip” the car for the value of the voucher), you must have insured the car for at least one year prior to the trade in). So when you go to purchase, make sure you bring your car registration and proof of insurance. The dealer will handle all the paperwork.

Here are some other important things to know about the program:

• The program runs from July 1 to November 1 (or until the $1 billion program funds are depleted)
• The program applies to both domestic and foreign car makers
• Leasing a car also qualifies for the voucher provided the lease term is at least 5-years
• New car must have an MSRP of $45,000 or less
• The cash value of the voucher is applied at the time of purchase and the dealer handles the paperwork
• The old car cannot be more than 25 years old

Cash for Clunker Program Details: Type of Vehicle, Max. MPG (combined city/hwy) of Old Vehicle, Min. MPG (combined city/hwy) of New Vehicle, Cash Value of Voucher:

• Passenger car, 18 mpg, 22 mpg, $3,500
• Passenger car, 18 mpg, 28 mpg, $4,500
• SUV / Light duty truck, 16 mpg, 18 mpg, $3,500
• SUV / Light duty truck, 16 mpg, 21 mpg, $4,500

While there are many critics of this program, what really matters is knowing whether this applies to you. Armed with information, this could be a very attractive time to buy or lease a new car. So whether or not this program will stimulate an additional 200,000 car sales is irrelevant. What is important is that this program could put up to $4,500 extra in your pocket. Not bad! So negotiate your best deal and then apply the voucher to lower the cost even more.

One final note. Beware of scammers using the Cash for Clunkers program to induce you to “sign up” or “register” for the program or for a voucher. There are no such requirements. These lowlifes are just trying to steal your personal information.

Comments

[Curtis]

One question I haven't seen in any of the plethora of blog posts I've read about this program is: How do they determine what the MPG is of your car?

I have a 15-year-old Pontiac Bonneville that still gets surprisingly decent mileage (mid-20s highway when I last calculated), but it burns oil and it's nearing 190k miles. It's only a matter of time before it breaks down completely, and I've been thinking about looking at something new.

So, do they actually test the car you bring in to see what sort of mileage it gets? Or do they go by some kind of chart that lists "average" mileage for various makes, models and years? Or do they just rely on the good word of the person who brings in the car?

[FMF]

Curtis --

There's an eligible vehicle list. Check it out here:

http://www.edmunds.com/cash-for-clunkers/eligible-vehicles.html

[anon]

Also be aware of dealers jacking up the price of the vehicle (or not willing to negotiate the price) due to this rebate.

[Bad_Brad]

anon at 1:11 PM nails it.

All this really does is take money from taxpayers and put it in the pocket of car dealers, who will now be able to charge you more for a car because of this rebate that they can wave in front of you. Just like the rebates for home improvements don't put money in the pocket of homeowners, they put money in the pocket of contractors.

[bob]

So let me get this straight.

You must purchase a "ready to depreciate" BRAND NEW car for likely $20K-$40K so you can "save" up to $4,500. Which the car will promptly lose the moment you drive it away.

Wow! I wonder who this "benefits"

Where do I sign up.

The real story is how this is an enormous racket by the government and automakers to get suckers to buy new cars and trucks they don't need with money they don't have.

[Robert W]

I drive a Paid off 'clunker' that gets 20mpg.
Why would any one want to add DEBT slavery for a car?

Nothing says math smarts like a car note of 300-500S month PLUS insurance fuel upkeep - just to 'save 3500$?
My 300-500$ goes to paid off house and real investments.

Long live car debt slavery.

[rwh]

I would have seriously considered buying a new econobox for 15k or so, but alas, my 1992 Dodge Caravan with 3.0L V6 (that is rusting, leaking everywhere and has a cracked windshield) gets 19 mpg in EPA combined mileage.

I guess I'll just save my money instead.

[Mike Hunt]

Cash for clunkers is now over... on the front page of Yahoo Finance news!

Guess the gov't is oversubscribed and hit $1 billion already!

Change you can believe in baby.

-Mike

[FMF]

Mike --

You're cracking me up! :-)

[steven]

Would this be good way to buy a few more months to hang to a vehicle? Credit cards are maxed and cedit is not very good but car payments are good. Credit on current vehicle is good, but over all credit, house, and so forth is bad.

[Mike Solis]

Hi people I have a 95 gmc converion van that get 15 mpg but I also drive a older lincoln so I took the insurance off the van about six months ago to repair major problems as soon as I could aford to fix it. Thank You Mike Solis

[Mike Solis]

Sorry I forgot My Question am I still eligable for cash for clunkers. Thanks World Mike