Wednesday, August 5, 2009

Cash for clunkers may not be the deal you need

By Dan Danford

The government has announced it will likely continue its CARS program (known by most as Cash for Clunkers), in which individuals are given a bonus for purchasing a new car. (Read a news story about it here. See the details of the plan here.) Rebates are $3,500 or $4,500, depending on the circumstances of the car trade-in and purchase. The old vehicle is scrapped, with the concept being that gas-guzzlers are traded in for newer, more efficient vehicles, including hybrids, which get more miles to the gallon of gas.

The basic tenants of the plan are as follows:

- Your vehicle must be less than 25 years old on the trade-in date
- Only purchase or lease of new vehicles qualify
- Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
- Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
- You don't need a voucher, dealers will apply a credit at purchase
- Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
- 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.

The idea of getting a discount on a vehicle may tempt some to consider purchasing a vehicle when perhaps it's not in the consumer's best interest. Avoid that common fallacy that you "saved" a lot of money by buying on sale. Unless you needed something in the first place, you didn't really save anything. If you are actively in the market for a new coat, and you find one at 50 percent off, then you saved that money. But, as is more commonly the case, you find it on sale, and you don't really need it, but you like it, so your buy it, then you actually spent money, not saved it!

The same holds true with cars. With car company rebates and the government's clunker program, it's a great time to be buying a car. But only if you need one anyway. If your family schedule called upon you to buy a replacement car anytime in the next year, this could be a big saving opportunity. If not, you're just rationalizing so you can get a new one. Those are the kinds of mistakes that led us into the mess in the first place.

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