Car Allowance Rebate System: Is it a good deal?
President Obama has approved the CARS program to stimulate new car purchase and help you buy a more fuel-efficient car. We've looked at the details of this new plan and outline how you will profit, or not, from taking advantage of it.
Which cars are eligible?
- None older than 25 years old (no yard-bound clunkers) are eligible.
- You must have owned it for at least one year prior to trade in.
- The new car must get at least 18 mpg city/highway combined.
- Trucks have different requirements. We still aren't sure what they are right now.
- Your new car must be purchased new.
What do I get for my trade in?
If your purchase meets the requirements you will be given $3500 or $4500, depending on the new vehicle.
Can I buy a used car or get a lease?
This is the biggest caveat to the CARS program. You may not buy a pre-owned vehicle to qualify for the credit. However, you may sign up for ridiculous debt (lease must be at least 5 years long) and have no car at the end of your payments. This should not be an option in any thinking person's framework.
When do I get reimbursed?
Trade in the old car, buy a new fuel-efficient one, and Uncle Sam will send you the credit within 10 days after the sale, assuming the NHTSA approves the transaction.
It's a no brainer, right?
Not exactly. It's only going to save you money if you had enough saved or a vehicle and you've been looking to buy. Similar to the housing credit, I definitely wouldn't advocate going into debt. Cars can lose up to 20% in value as soon as you drive off the lot, so even with the credit it may not be a huge leap in savings.
As for fuel-efficiency, you aren't required to purchase a hybrid vehicle but the new car must have at least 18 mpg combined city/highway. Unless you have driven that '88 F350 to work every day, the amount you'll save depends largely upon the new car gas mileage. It can take up to five years to start seeing savings. Part of determining your rebate amount depends upon the difference of your current mpg and the new car.
The bottom line: this is not an excuse to clear out your emergency fund for a new car. The fact that you must purchase a new car is highly prohibitive for frugal folks who are looking for real deals. I understand and respect the attempt at creating incentives to revitalize the auto industry, but going into debt is definitely not a viable option. No doubt many clunkers rolling around are not suitable for children and guzzle far too much gas. But most of us have access to good-enough transportation. The CARS program with only help if you are actively looking to buy now. More details should materialize toward the end of this month. For more information check out the government's site at Cars.gov http://www.cars.gov/.
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Actually, there are a few things that folks should also consider. For instance, insurance on a new car is likely to be more than your current insurance with your current car (assuming it's been paid off) as you'll likely have to add coverage. Moreover, one should also consider other maintenance costs beyond gas. Depending on the make and model of your previous car to the one you're looking to acquire through C.A.R.S. you could see savings in gas turn into costs if the new car is unreliable.