As we have stated in our resource material, buying a used car is most often a better value than buying new. Will our opinion change with this program? Let’s assess the value of the Cash for Clunkers program offered by the federal government where taxpayers subsidize the purchase of a vehicle.
The maximum value offered is a $4,500 voucher, which requires mileage improvement of 10 miles per gallon for passenger vehicles, 5 miles per gallon for light-duty trucks, and 2 miles per gallon for large light-duty trucks. There is also a $3,500 voucher if the mileage improvement is 4 miles per gallon for passenger vehicles, 2 miles per gallon for light duty trucks, 1 mile per gallon for large light duty trucks and any pre-2002 commercial truck. The $3,500 voucher has less of a margin of value for the consumer. Knowing this, find the average sale price of your vehicle on nada.com. Your savings is the difference between the sale price of your car minus the cost of having it sold and the $4500 voucher. It is estimated a vehicle depreciates about one third of its value as soon as it is driven off the lot.
To find the best deal, take the price of the new vehicle and subtract the savings from the Cash for clunkers program. Compare this to the price of a low mileage used car found on nada.com. The lowest price is the better value if you follow the subsequent steps.
When evaluating a used car, first check with carfax.com to identify the history of the vehicle. Next it is best to check with nada.com to identify the average sale price of the vehicle and compare your price to the average. Also, your mechanic should assess the condition of the vehicle.
There are other considerations before your purchase. You need to call your car insurance agent and ask what it will cost for insurance on the new vehicle and the used vehicle. For the new vehicle, you would need gap insurance because of the extreme depreciation after driving off the lot.
Next you may want to consider how you will pay for the vehicle. It is always best to avoid debt by paying cash. Credit unions are usually less expensive than banks, but consider equity loans verses car loans so that interest can be written off for federal tax purposes. New car loans usually have lower interest rates than used car loans.
Finally “avoid” going to the cash for clunker website at cars.gov. They will ask for permission to take over control of your computer. That’s right. They are asking permission to monitor your e-mails, your phone calls, the websites you visit, and all correspondence. Here is the exact verbiage from the website; “Any or all uses of this system, and all files on this system may be intercepted, monitored, recorded, copied, audited, inspected, and disclosed to authorized CARS, DOT, and law enforcement personnel as well as all authorized officials of other agencies, both domestic and foreign. By using this system, the user consents to such interception, monitoring, recording, copying, auditing, inspecting and disclosure at the discretion of CARS or the DOT personnel.” I do not know what any of this has to do with cars, but beware of this intrusion of your privacy. I now know why the current administration has czars who do not report to Congress.
Robert Ostrander, CFP®
SWS Advisors, Inc.
