Clunkers For Cash: Is It Even Worth It?
In an effort to get gas-guzzling SUVs off the road, the Obama administration recently pushed the Cash For Clunkers program through congress. This $1 billion program can be worth a tax credit of up to $4,500 off the price of a new car lease or purchase. That sounds like a pretty good deal on the surface, but is it really?
Cash For Clunkers Rules
In order to qualify for the Cash For Clunkers program, certain rules must first be met.
- Only drivable clunkers manufactured within the last 25 years are eligible, and must have been continuously insured for at least one year by the current owners leading up to the trade-in. That is, junkyard vehicles or used cars bought just for the purpose of taking advantage of the program are a no-go.
- Only new vehicles costing less than $45,000 (sticker price) are eligible for the program
- Passenger cars must get an EPA-estimated 22 mpg or more in order to qualify for the program. If the new car four more miles to the gallon than your old care, you get a $3,500 tax credit. If it gets 10 mpg more than your old car, you get the full $4,500 tax credit.
- Trucks and SUVs only need an EPA-estimated 18 mpg to qualify, and the mpg improvements required for the $3,500 and $4,500 tax credits are 2 mpg and 5 mpg, respectively. I hate to ask the obvious, but if the point of the program is to get gas-guzzlers off the road, why allow trucks and SUVs to qualify at all?
Is It Worth Trading In Your Clunker For Cash?
For the most part, the answer is yes: it’s worth it, but only if you were going to buy a new car anyway. After all, a $4,500 discount is a $4,500 discount. I worry, however, that many consumers will get suckered into using this as an excuse to buy much more car than they can afford. If you use the credit to buy a $30,000 care when you would have otherwise bought a $20,000 car, you’ve actually made a poor financial decision. It may be a better car and may even make you a happy camper, but from a strictly financial standpoint it doesn’t make sense. Similarly, if you trade it an old vehicle just to get the discount when you would have otherwise driven it for a few more years, you’ll end up worse off, financially.
Sadly, I think many Americans will treat the $4,500 as free money and dig themselves further into debt for the sake of driving a shiny new depreciating asset for a few years. Will the program succeed in getting the gas guzzlers off the street? Maybe, but any success in this department is bound to be modest at best because trucks and SUVs are included. Eighteen mpg is still pretty bad for the environment.
Other Articles On The Cash For Clunkers Program
Want to know more? Check out these articles.
- Cash For Clunkers – Does Your Car Qualify? by Four Pillars
- Common Questions About The Cash For Clunkers Program Answered by Bible Money Matters
- Cash For Clunkers Information by Military Finance Network
- Cash For Clunkers Bill by Cash Money Life
- Gas Guzzler Rebate, Get Cash For Clunkers by Moolanomy
- Cash For Clunkers Program by Frugal Dad