Cash for Clunkers

Posted by Kate on August 3, 2009

“Cash for Clunkers” Program

As many of you may have heard, the government recently released the rules for its Car Allowance Rebate System (C.A.R.S.), also known as “Cash for Clunkers.”

The program’s goal is two-fold: to get older, less fuel-efficient cars off the road and 2) to encourage sales and leases of new cars in order to stimulate the struggling auto industry. Cash for Clunkers does this by allowing auto dealerships to offer a credit towards a new car to owners who turn in their “clunkers.”

Cash for Clunkers Features

  • Fuel Economy: To qualify for the credit, your “clunker” has to have a combined fuel economy of 18 mpg or less and your new vehicle must get 22 mpg or better. You can calculate the fuel economies of both vehicles here. Remember: the comparison should be done between the “combined” values.
  • Rebate Amount: The credit amount is either $3,500 or $4,500. It is calculated based on the difference in fuel economy between the “clunker” and the new vehicle. For cars (not trucks), if the new vehicle is 4-9 mpg better, the credit is $3,500. If it is 10 or more mpg better, the credit is $4,500.
  • Your Vehicle: To see if your vehicle qualifies, you can use the Cash for Clunkers calculator or check the eligible vehicle trade in list.

More Details

Timeline: The program applies to trades that occur July 1, 2009 or later so if you traded in a car in July and didn’t receive the credit, you may still be eligible. It ends November 1, 2009, or when the funds are exhausted, whichever comes first*.

Combining Credits: You can combine this rebate with other dealer and government incentives. The Cash for Clunkers credit can be used in addition to any other rebates that the dealerships normally offers, and can’t be used by dealers as a replacement for their usual incentives. It can also be combined with government tax credits, like the one for hybrid cars.

Taxes: This credit will not be subject to income tax. However, whether it is subject to sales or local tax or not will vary by area.

What happens to my “clunker?” The Cash for Clunkers program requires that all “clunkers” be destroyed so that they can’t be resold, though some parts may be.

Is this Program for Me?

The Cash for Clunkers program should help the United States encourage automakers and consumers to move towards more fuel-efficient vehicles. For the right consumers, it can be a great way to save money on a new vehicle purchase they were going to make anyway. However, don’t let this credit sidetrack you from still doing your research and properly negotiating the best price for your car.

In addition, those who aren’t already in the market for a new car shouldn’t necessarily now make a purchase because of this program. A car may be worth more in a private party sale or worth more to its owner than cash. For example, a 2002 Ford Explorer with 75k miles could sell for about $6k on Craigslist and, if in good shape, should last another 3-5 years without many major repairs. In either case, its value to its owner is worth more than the government’s $4,500, especially if he makes an effort to improve its fuel efficiency.

If you’re ready to buy, be sure to get a free copy of your credit report before applying for a car loan.

Will it Last?

*Because of the popularity of Cash for Clunkers program, there was mention last week that the program had used up all the funds; then the House voted to inject an additional $2 billion to revive the program. No matter what Congress does, if you make a purchase, the rebate will be honored through Tuesday, August, 4.

For more information, see the Cash for Clunkers FAQ.

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Comments to Cash for Clunkers

  1. I bought a new car in 2005, so I hope and expect that it won’t become a clunker for many years. I can’t wait until it is paid off (probably another 6 months) and then I can put that extra money in my budget into a savings account.

    Dave C.

  2. Many vehicles won’t qualify for a voucher because of all the restrictions. In these cases, a good option is charity car donation. Not only does the charity get some much needed revenue, the donor gets a tax deduction.


  3. I agree, there are many restrictions. (1) the car must driveable. (2) it must be no older than 1990. (3) it must have been insured for the past 12 months.

    Most ‘Clunkers’ I know of are older than year 1990 and not driveable.
    Where do I find a ‘clunker’? Best to find one that has been wrecked or totalled (for insurance purposes), but is still driveable. Don’t look in a salvage yard. They pull the engine and drain for fluids. Ask at your local body shop. They often get wrecked cars in. Ask who the owner is and offer them some cash to sign over the title. But be sure that you are getting a “clean” title and the car was insured.


  4. My question is this: What happens when the government stops paying people to buy new cars? What will they do when new auto sales crater again after this round of hand outs end?


  5. So as we now know, it is taxable both as income AND as sales tax. And that’s not mentioning the processing fees the Feds will tack on.


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