Cash for Clunkers - the U.S. Government's New Car Scrappage Scheme

On or around July 23^rd, 2009 the U.S. Government's new Cash for Clunkers program comes into effect. Through this program, individual car and truck owners can receive up to $4,500 in cash toward the purchase of a new more fuel-efficient car or truck. The program is slated to run through November 1, 2009 or until funds run out. Although this is "free" money, there are several stipulations consumers must meet in order to qualify.

First, the car or truck you are trading in must get a combined (highway and town) miles per gallon of 18 mpg or less as per the Environmental Protection Agency. The EPA's miles per gallon calculation, by car make and model, can be found at their website linked here. The "clunker" you trade in must be a 1984 model or newer, and must be scrapped. Owners will also need to have owned and insured their clunker for a year or more at the time of trade-in.

Cars or trucks you purchase through this program must be new and can not exceed $45,000 in price.

New cars must achieve at least 22 miles per gallon and must have a combined miles per gallon at least 4 mpg higher than your trade-in. This will qualify you for a credit of $3,500. If your new car gets 10 miles per gallon or more greater than your trade in, you will receive a $4,500 credit.

New trucks must achieve at least 18 miles per gallon and must have a combined miles per gallon at least 2 mpg higher than your trade-in. This will qualify you for a credit of $3,500. If your new truck gets 5 miles per gallon or more greater than your trade in, you will receive a $4,500 credit.

If you are in the market for a new car or truck, and you qualify for the Cash for Clunkers program, it may make sound financial sense to partake of this credit and get the new car or truck you have been shopping for. If you were planning on buying a new car or truck in the next year or two, and if you qualify for the Cash for Clunkers program, it may also make sound financial sense to push up that purchase date to before November 1, 2009.

For some car and truck buyers, taking advantage of the Cars for Clunkers program makes a lot of sense. For others however, it may not be such a good idea. If your clunker is worth more than the credit you would receive (either $3,500 or $4,500) it would not be a good financial move to utilize this program. You would be better off selling the clunker yourself and applying the proceeds toward a new purchase. Additionally, if you are still making payments on your clunker or don't have the cash/financing available for a new car or truck, utilizing this program may not be your best option.

Sources:
Find A Car - Fueleconomy.gov
Cash for Clunkers - How it Could Work for You - Cars.com