Can the "Cash for Clunkers" Program Help You Buy a New Vehicle? Facts You Need to Know

Special note:
"Cash for Clunkers" Program Officially Ended Monday, August 24, 2009.

There’s been lots of publicity about the federal government’s recently launched Car Allowance Rebate System (CARS), more popularly known as the “Cash for Clunkers” program. This $1 billion program can help consumers replace a gas guzzling vehicle with a more fuel-efficient new vehicle. It runs from July 1, 2009 until November 1, 2009 or until the money runs out if sooner. You might be able to benefit from this program if your old vehicle and prospective new vehicle meet specific requirements—and there are quite a few requirements. Here briefly are the facts you need to know to decide if the program’s right for you.

Basic Program Information

The program runs from July 1, 2009 through November 1, 2009. It could end earlier if the funds are exhausted. It applies to the purchase or lease of new vehicles only. A used vehicle cannot be purchased under the program.

What types of vehicles are eligible?

Eligible vehicles are divided into four groups each with different eligibility terms.

• Passenger automobiles.
• Category 1 trucks include sport utility vehicles (SUVs), small and medium pickup trucks, and small and medium passenger and cargo vans.
• Category 2 trucks are large vans with a wheelbase of more than 124 inches or large pickup trucks with a wheelbase of more than 115 inches. Some pickup trucks and cargo vans exceeding these thresholds are treated as category 3 trucks instead.
• Category 3 trucks are work trucks that are rated between 8,500 and 10,000 pounds gross vehicle weight. Included in this category are very large cargo vans and very large pickup trucks with cargo beds 72 inches or more in length.

How does the credit work?

A credit of $3,500 or $4,500 is applied as a credit by the dealer at the time of the purchase or lease. The amount of the credit is determined by the type of vehicle purchased/leased and the difference in fuel economy between the new and trade-in vehicles. This credit is in addition to any rebates or discounts advertised by the dealer or offered by the manufacturer.

Important Caution: The program credit replaces the trade-in value or allowance that a dealer might give you for your old vehicle. You can’t get both. Because all old vehicles traded under the program must be crushed, any old vehicle has only a scrap value which the dealer is required to tell you. If your old vehicle has a wholesale value of more than the program credit, the program is probably not for you.

• For passenger cars, the $3,500 credit applies if the new vehicle has a combined fuel-economy that is at least 4 but less than 10 miles per gallon higher than the trade-in vehicle. The $4,500 credit applies if the new vehicle has a combined fuel economy value that is at least 10 miles per gallon higher than the trade-in vehicle.
• For category 1 trucks, the $3,500 credit applies if the new vehicle is a category 1 truck that has a combined fuel economy value that is at least 2 but less than 5 miles per gallon higher than the trade-in vehicle. The $4,500 credit applies if the category 1 truck has a combined fuel economy value that is at least 5 miles per gallon higher than the trade-in vehicle.
• For category 2 trucks, the $3,500 credit applies if both the new vehicle and the trade-in vehicle are category 2 trucks and the combined fuel economy value of the new vehicle is at least 1 but less than 2 miles per gallon higher than the trade-in vehicle. The $4,500 credit applies if both the new vehicle and the trade-in vehicle are category 2 trucks and the combined fuel economy value of the new vehicle is at least 2 miles per gallon higher than the trade-in vehicle. The $3,500 credit applies if the If the trade-in vehicle is a category 3 truck that was manufactured no later than the 2001 model year but not earlier than 25 years before the trade-in date.
• Category 3 work trucks have different rules [http://www.cars.gov/faq#question-25] since the EPA does not rate them for fuel economy. Work trucks are eligible if they were manufactured no later than the 2001 model year but not earlier than 25 years before the trade-in date. Work trucks may only be traded in for the purchase of a category 2 truck or another category 3 truck that is of a similar size or smaller than the trade-in vehicle. Only the $3,500 credit is available for work trucks.

New vehicle eligibility

The new vehicle is eligible if it meets the following criteria.

• The new vehicle must have a manufacturer's suggested retail price (MSRP) of $45,000 or less.
• If the new vehicle is leased, it must be leased for at least 5 years.
• The new vehicle can be domestic or foreign.
• Passenger automobiles must have a combined fuel economy value of at least 22 miles per gallon. Category 1 trucks must have a combined fuel economy value of at least 18 miles per gallon. Category 2 trucks must have a combined fuel economy value of at least 15 miles per gallon.

Trade-in vehicle eligibility

A vehicle is eligible for trade-in if it meets the following criteria.

• Must be drivable.
• Must have been continuously insured and registered in the same owner's name for the one-year period immediately prior to the trade-in. These fraud-prevention requirements prohibit ploys like buying an old clunker for $100 or so and trading it in. You will need to have proof of insurance and registration for the trade-in.
• Must have been manufactured no earlier than 25 years before the date of trade-in. This means that model years 1983 and earlier are not eligible and most 1984 model year vehicles are not eligible.
• Must have had a combined fuel-economy of 18 miles per gallon or less when the vehicle was new. This number can be found on the fueleconomy.gov site. [http://www.fueleconomy.gov/feg/findacar.htm].

Trade-in value

Vehicles that are traded in are required to be crushed or shredded so that they are removed from the road. The dealer must provide you an estimate of the scrap value of your trade-in. The dealer is allowed to deduct $50 from the estimate for their administrative costs.

Financing the new vehicle

Remember to shop your financing for the new vehicle as we recommend in our [Car Buying Guide] [link]. Dealerships may attempt to persuade you to take their financing as part of the deal, but always compare financing offers with what your credit union can do. Your credit union loan officers are happy to help you make the comparison in order to make the financial decision that’s best for you.

Is the program right for you?

It depends. If the vehicle you want to trade is worth more than $4,500, then this program is probably not for you. If you're not sure, then check your vehicle's eligibility using the vehicle eligibility guide [http://www.fueleconomy.gov/feg/CarsSearchIntro.shtml]. The guide makes it easy to determine if your vehicle qualifies for the program.

Fraud Alert

With the popularity of the program, fraudsters are taking advantage. Websites are popping up to "register" consumers for the program. These sites are only after your personal information and your money. As noted above, consumers don't need to register because the dealership handles the paperwork. Check out this page on the CARS site for more details about what NHTSA is doing to guard against fraud and how you can report it. [http://www.cars.gov/index.php/fraud]

Need more information?

More details about the program are available at Cars.gov which is the official site for the program. It has a dealer locator, detailed FAQ, and Helpful Questions & Answers for Consumers.

Cash for Clunkers: how to trade in your guzzler from Consumer Reports is section that can help you determine if the program is right for you. It has recommended cars that qualify, fuel and owner costs comparisons, compare fuel savings with your current car, and a list of the most fuel-efficient cars.

Special note:
"Cash for Clunkers" Program Officially Ended Monday, August 24, 2009.