Cash for Clunkers Details

The so called “Cash for Clunkers” is stimulating new car sales already. Is it right for you? Here are some important details:

1. You have to buy a new car! The “cash” in the title is the trade-in value the government will give the dealer on certain cars. It’s not just giving you cash.

2. To be a “clunker” your car must be on the list of cars with mileage of 18 MPG or worse.

3. You have to have registered and insured the car for the full year previous to the trade in. So, if you’ve got a few extra old cars sitting in the driveway (the image brings back fond memories of my youth!) they may or may not qualify.

These are the big qualifiers, but there are more. Check out these two articles for more details:
Cashing in that Clunker is No Easy Ride
Sick of your Gas Guzzler? What to Do if You Want a Trade-in

There’s also a tax deduction for state and local tax paid on new cars bought between Feb 18th and Dec 31, 2009. So come tax time, you’ll benefit as well. The deduction is available whether or not you itemize, but there are income limits to eligibility. The deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and other taxpayers with modified AGI between $125,000 and $135,000. (These are high in the world of income phase-outs.)

With all these incentives, you may feel a license to spend. But, if you want to feel good about your decision in the long run, the usual car-buying guidelines apply:

Ideally, you can pay for your new car in cash and not get a loan. That’s not always possible, but it is the ideal.

It makes sense to buy a car with a loan if you need it for work. However, if you can’t pay for the car without a loan, you probably should get a used car instead. Use the actual trade-in value of your car instead of the government incentive and, overall, the deal will probably turn out to be more reasonable.

Also, you’ve got to qualify for a loan. Car loan standards have risen lately, so if you’re credit isn’t great, you might not qualify for a loan anyway. If you’ve got access to a credit union, make sure that you check with them about a car loan. The rates might be more attractive than what a dealer can provide. The credit unions in general seem to be weathering the current crisis with more aplomb than other financial institutions.

The $4500 is the trade-in value that you’ll get. If your car is worth more than $4500, don’t do the program. Trade in your car and get more.

If you’re buying a car for a spouse or partner, make sure they want it. Believe it or not, I’ve heard from more than one person that their spouse bought them a car they didn’t really want. The payments were too high, the model was not to their liking, or they would have rather spent the money differently. The buying spouse ends up feeling like their grand gesture was not appreciated. Forget what the Lexus commercials say; not everyone wants one.

by Bridget Sullivan Mermel