Note: The Cash for Clunkers program has ended as of August 24th, see the final results and sales numbers.
The government’s long-awaited cash for clunkers program is underway. So we’ve attempted to answer your questions about it here. Visit our complete cash for clunkers special section, where you’ll find more information about the program, guidance on vehicle choice, and buying advice.
What is Cash for Clunkers?
Now officially called the Car Allowance Rebate System (CARS), this government incentive program gives rebates to consumers who trade in older cars for new ones that are more fuel efficient. Used car purchases don’t qualify.
How does it work?
If you buy a new car now that gets at least 22 mpg overall, and trade in an old one that gets significantly worse gas mileage, the government will give you a $3,500 or $4,500 credit. (Specific guidelines are in the chart below.) The government-funded rebate is provided in lieu of a trade-in allowance. The old vehicle will be recycled, not resold. So if your old car is worth more money than the credit, it is not a good candidate for this program. The program is scheduled to run until November 1st, or until the allocated $1 billion is distributed.
How do I know which rebate I qualify for?
How much the rebate is worth depends on what type of car you trade in and what kind you buy. The program rewards a significant fuel economy improvement. However, if you’re buying a “light truck” such as a SUV or minivan, the mpg improvement doesn’t have to be as large.
|Passenger car light-duty||
Large light-duty truck
(6,000 – 8,500 pounds)
|Minimum fuel economy for a new vehicle (EPA combined)
|| 22 mpg
||18 mpg|| 15 mpg|
|$3,500 credit||Mileage improvement of at least 4 mpg||Mileage improvement of at least 2 mpg||
Mileage improvement of at least 1 mpg or trade-in of a work truck.*
|$4,500 credit||Mileage improvement of at least 10 mpg||Mileage improvement of at least 5 mpg||Mileage improvement of at least 2 mpg|
*Trade-in must be at least pre-2001.
Mileage ratings are based on official EPA combined estimates.
Do I have to register for the program?
No. Many dealer and third-party Web sites have sprung up asking consumers to unnecessarily register for the program. In many cases, they alert dealers that you may be thinking about buying a new car. For official information, the only place to look is www.cars.gov.
If you have an old vehicle that gets 18 mpg or less and is less than 25 years old, you may qualify, depending on what kind of car or truck you are purchasing. The vehicle must be drivable, and you must be continuously insured and registered to the same owner for a full year prior to trading it in.
What happens to my old car?
Dealers have to certify that the old cars will be crushed or shredded in order for you to qualify. So they won’t be offering any additional trade-in allowance. All you’ll get for your car is what the rebate is worth. The vehicle itself may be parted out, with the exception of the engine and drivetrain.
What kind of car can I buy?
Used cars don’t qualify, but any new car that gets more than 22 mpg is eligible, or any SUV or truck that is EPA-rated at 18 mpg or more. Refer to the chart above to see the minimum mileage increase based on the vehicle type.
Can I lease?
Only leases of longer than five years qualify, so not many. But purchasing is always cheaper than leasing. And it’s a bummer to make five years of payments and not own the car.
Can I have an outstanding loan on my old car?
You could, but it would have to be paid off as part of the transaction. That would reduce the effective value of the rebate you receive or could result in that “negative equity” in your old car being rolled into the new car loan – not a good financial move. See our buying advice.
Can I use the program at any dealership?
You can get a CARS rebate at any participating dealership. More than 22,000 dealership are participating, representing the vast majority. Won’t people scrap classic cars? Doubtful. True classics will be worth more than the credits, and the program is limited to the past 25 years, prior to antique status. Will the supply of parts for old cars be diminished? Old cars have to be sent to the junkyard and cannot be retitled. Parts can be sold off of them, but the engine block can’t, and the drivetrain cannot be sold intact. So the supply of engine blocks may be diminished, but other parts may actually be easier to obtain.
How much will the program cost?
Congress budgeted $1 billion for the program.
Will I be taxed on the rebate?
CARS rebates will be exempt from federal income taxes. However, state and local tax policy varies.
Will the CARS rebate substitute for other manufacturer or dealer rebates?
No, dealers aren’t allowed to reduce or hold back other rebates in exchange for CARS credits. This government-funded rebate is a substitute for the trade-in allowance you might otherwise get, not for any discount off the new-car price.
Will there be an additional paperwork fee for using the CARS rebate?
No, dealerships are not allowed to charge any extra fees for using the program. To cover administrative costs, dealers may keep up to $50 of the amount they receive for scrapping your old car vehicle.
What else do I need to know about the program?
Only one CARS rebate per person is allowed. You can’t get two rebates if you trade in two clunkers for two new cars. Also, only one rebate is allowed per trade in, even if two or more individuals own the vehicle. Sales tax on the purchase of your new car is tax-deductible on your federal income taxes. And you can combine any other federal, state, or local government incentives to buy a new car with a cash-for-clunkers rebate. The dealer is also required to tell you how much your old car is worth as scrap.
When does the program end?
The new cash for clunkers law runs from now until October, 31, or until the $1 billion budgeted for the program runs out. Congress could choose to extend it if the money isn’t spent by then, or it could decide to allocate more money to the program.
Visit our Cash for Clunkers special section for more details. To get advice on whether it is the right time to buy a new car, see our post Is Cash for Clunkers for you? Visit our New car buying and leasing forum to share your experience and give advice to others making the trade.
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