This entry will, hopefully, be the first in a series entitled, "Against the Mainstream." The series will aim to dispel popular, or mass media, themes, trends, recommendation, tips, or programs.
Does the Cash for Clunkers government program make sense for a practical or frugal individual? Before we dive into the question, let's consider some facts via the official Cars Allowance Rebate System (or CARS) government web site:
- Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements).
- Your vehicle must be less than 25 years old on the trade-in date.
- Only purchase or lease of new vehicles qualify.
- You don't need a voucher, dealers will apply a credit at purchase.
- The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.
- Qualified consumers will receive the $3,500 or $4,500 credit at the time they purchase their new vehicle.
So, with the above information does it still make sense for you to run to your nearest dealer and trade in your good old clunker for a shiny new piece of metal? The first question you should be asking yourself is do I really need a new car? For example, most reliable cars built over the last 10-15 years are designed to run to, at least, 100,000 miles without major repair cost (this doesn't include oil and filter changes, tire and break maintenance, exhaust system, fluids, and some belts). A reliable vehicle with over 100,000 miles and which gets less than 18 mpg could cost you less over the true life of the vehicle over purchasing a new, fuel efficient, vehicle.
On average a new vehicle in the US costs close to $30,000, so even with the max $4,500 credit the average consumer is still needs to come up with $25,500 to "take advantage" of the Clash for Clunkers program. You can repair and keep many reliable cars going for 25K! And If you're looking to spend 25K I can think of a handful of better ideas (including saving the money in a high yield savings account, investing in undervalued stocks, setting up a Roth IRA, etc.) - remember money can buy you many things, it just can't buy happiness.
Overall, I think it makes sense to leverage the Cash for Clunkers Bill if you're truly in market for a new vehicle, but I wouldn't advocate visiting your dealership if you have a reliable late model vehicle in your fleet (even if it requires the occasional repair and gets under 18 mpg).
If you absolutely need to purchase a new vehicle here are some tips from an older post.
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