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Should We Cash In Our Clunker?

Ylan Mui

I am proud to say that I drive a fuel-efficient car, a Honda Civic Hybrid that gets as much as 50 miles to the gallon on the highway.

My husband's car, on the other hand, is not so green. It's a nearly 15-year-old Land Rover Discovery, and he loves it. They just don't make them like that anymore, he tells me. Thankfully, he is right!

According to, his car gets a whopping 13 miles per gallon and emits 14.1 tons of carbon dioxide into the air each year. We know we need to replace it -- if only for the sake of the environment -- but we cringe each time we think about taking on a new car payment.

Uncle Sam is about to launch a program that seems designed specifically for us. The official name is the Consumer Assistance to Recycle and Save Act of 2009, but it's more commonly known as just "cash for clunkers." It offers consumers a credit of up to $4,500 if they trade in their old gas-guzzlers for new, more fuel-friendly ones.

The $1 billion program is scheduled to start around July 24. The idea is to help boost auto sales and score some brownie points with Mother Nature at the same time. To qualify, the clunkers must be built in or after 1984 and be in drivable condition. You have to have owned the car for at least a year and must buy a new car to replace it.

For more details of how the program works, check out the official site. also has a handy chart of qualifications.

I gotta admit, the offer is tempting, which is the entire point. I looked up the value of the Land Rover in the Kelley Blue Book, and our estimated trade-in value is only $800. At first glance it seems like a no-brainer.

But (and there's always a but!), we had planned to start saving money to buy a new car next year. With a little discipline, we would have enough cash to pay for a car in fulll -- no interest and no financing. If we bought the car now, we would have to finance a portion of the purchase. So we'd be able to take advantage of the $4,500 credit, but we may have to pay more over time in interest.

I'll pose the question to you, our loyal Small Change readers: What do you think I should do? Is it worth taking the jump now? Send me your thoughts in the comments below or via e-mail at muiy[at] and Twitter at @ylanmui. My goal is to negotiate a deal that would let us turn in our clunker for cash AND get zero percent financing.

And of course, we'll keep you posted on how it goes!

By Ylan Mui  |  July 20, 2009; 7:00 AM ET
Categories:  Bargains , Cheap & Green , Consumer News , Ylan Q. Mui  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Who's Better with Money? Men or Women?
Next: Cash for Clunkers Part 2


How about go halfway? The law is good until November; no one says you have to run out this minute to buy a car. So save all you can between now and October, then go shopping in earnest (presuming the law hasn't been extended by then). Even if you don't have all the money saved, if you then divert all of the money you were saving to the car loan, you'll get it paid off within the year.

Plus deals usually get better as winter approaches anyway -- spring/summer is usually when the carmakers are introducing the new models, so late fall/winter is when they're desperate to clear the last of the old models off the lots. We got a great deal last Oct. Like you, we had planned to wait another couple of years to pay all cash, but then my car went boom in the parking lot, and I didn't trust it with my kids any more (what if it had happened going 70 mph on I-95?). Turns out, the dealer had only 4 of the car I wanted left from 2008, and he really, really wanted to clear those out so he could start selling the 2009s. In the end, I got exactly the car I wanted for @ 20% off list -- and about $1K less than I was seeing the same car advertised used.

On the flip side, needing a loan from the dealer is going to give you less bargaining power. Some dealers are still having trouble getting financing for people at all -- are there even any 0% financing offers out there any more? More importantly, how do you think they pay for that 0% financing? They charge you more for the car!! There's always, always a tradeoff; don't think you're going to get both the rock-bottom sales price and 0% financing. You're going to need to figure out which is the better deal -- and if you have only a minimal loan balance that you intend to pay off within the year, you're going to be better off with the lower sales price. So go negotiate a car loan from a credit union, then negotiate a cash price from the dealer. (We had a family loan so were able to offer to write a check -- and I can't tell you how happy they were to see cash on the barrelhead).

Posted by: laura33 | July 20, 2009 9:53 AM | Report abuse

If you think you can save enough money by next year, you should definitely try to buy a car through this new act. Most likely, the program will be extended. And in any event, I still the credit will definitely cover any interest you have to pay. In addition, you'll be able to get deductions for any state or local taxes you pay when you purchase a new car this year.

Posted by: sinleing | July 20, 2009 10:09 AM | Report abuse

I'd definitely go ahead and buy the new car now. You can still save up to buy the car outright (by paying down the loan ahead of time), so that you don't end up paying the full interest rate (which are low now to begin with). Plus, like the commentator above said, the credit will more than cover the interest you need to pay.

Besides that, you'll get loads of good karma for trading in your gas guzzler for a fuel efficient car. We can't always let the bottom line be financial, if we're going to get ourselves out from under the environmental mess we've created!

Posted by: DCChicago | July 20, 2009 11:30 AM | Report abuse

One other thought: compare the ownership costs of the two cars -- insurance, repairs, gas, oil changes, interest on any loan that you'd take out, etc. It may actually be cheaper to buy a new, small, fuel-efficient car than to continue to drive the old one, even with a small loan. Yeah, unlikely -- I imagine the insurance rates on a new car are going to go up a lot, which would likely offset the decreased fuel/maintenance costs. But you never know until you run the numbers.

Posted by: laura33 | July 20, 2009 1:24 PM | Report abuse

Poor mileage and free government money are bad reasons to replace a car that apparently (a) works and (b) makes your husband happy.

If you seriously want to save the earth, use "your" hybrid for all long-distance driving and whoever has the longest commute. Save the Land Rover for your next safari.

Posted by: gettingdizzy1 | July 20, 2009 4:23 PM | Report abuse

You asked whether you should take the $4,500 now (actually $4,500 minus the $800 value of the trade in car) because interest on the new car loan might exceed that amount. The answer is that the cost of the new loan is not the total interest charged, but rather the difference between the interest rate charged on the car loan (likely to be a low promotional rate) and the interest rate you earn on the money you are currently saving and will continue to save. That's unlikely to exceed $4,500.

Posted by: matt17 | July 21, 2009 10:35 PM | Report abuse

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