Cash For Clunkers


The Cash for Clunkers bill recently became law. Many people are excited because it essentially gives auto dealers the ability to provide you with a $3,500 (in some cases $4,500) rebate towards the purchase or lease of a new energy efficient vehicle. All you need to do is trade in your older, less energy efficient vehicle.

Some see it as a way to help our environment; others simply see it as a means to helping the auto industry and the struggling consumer during this recession. But how does it really work, and who can really see a benefit in their personal finance plan from participating??I’ve come up with a few questions you can ask yourself that will help you decide if the new Cash for Clunkers program is right for you.

Do You Have a “Clunker”?

Not just any old clunker will do. The car you trade in to the new car dealer will need to fit the?following requirements:?- less than 25 years old?- 18 or less MPG (in some cases less)?- in drivable condition?- registered and insured by you for the last year.?If you’ve decided you have a clunker, move to the next question.

Is Your Clunker Worth Less than $3,500?

$3,500 is about the max the dealer is going to give you for your trade-in vehicle. They’re required by the new law to dispose of your clunker. They can’t resell it or keep it for themselves. It must be destroyed. That being the case, they’re only going to give you, at most, the scrap value to of the vehicle. What’s a hunk of metal worth these days??So, unless your clunker is worth significantly less than $3,500, this isn’t a good deal for you. You wouldn’t want to trade-in a clunker that’s worth $5,000 just to get the rebate towards the new car purchase. You’d instantly lose at least $1,500 on the deal.?Okay, so let’s say you’ve got a clunker worth less than $3,500. Let’s move to the next question.

Can You Negotiate with Car Dealers?

Auto dealers should be most excited at this program. That’s because they’ve been given $3,500 to offer as an incentive to get you in the door and make a deal. The problem for you is that they’re likely to get rid of their normal incentives, and not provide you much of a deal beyond the Cash for Clunkers rebate.

A good approach for you would be to find out how much you’d pay for the new vehicle had there been no Cash for Clunkers program. An easy way to do that is to check a site like www.edmunds.com. They will tell you the price you should expect to pay, including normal rebates and incentives. Now take that price and subtract the $3,500. If you can get that price for the new vehicle then you’re headed towards a good deal.

New cars aren’t normally considered a good deal because of their instant off-the-lot depreciation. But if you’re getting the dealers best price, plus the clunker rebate, that may be a non factor.

Can You Afford a New Car?

If you’re still with me, odds are the Cash for Clunkers program makes sense for you financially and you’ll end up with a good deal. Still, there’s a few more things that could trip you up.?If you’re going to have to finance the new car purchase, make sure you get a good interest rate on the loan. A high-interest rate auto loan could have you paying thousands in interest payments over the life of the loan: an amount that would negate the deal you’re getting with the clunker rebate.

Lastly, make sure the payment is something that fits into your budget. Chances are, if you had a clunker before, you didn’t have a payment. With a new car you’ll be taking on a significant debt payment each month. Use an excellent personal finance software tool like Quicken Online to help you ensure you have the room in your budget for the payment.

So were you able to answer yes to all the questions above? If so, you’re probably ready to head out and get rid of that clunker. If not, happily pass on the program, knowing you’re better off with your old clunker.

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