The House of Representatives has passed a bill that would provide car shoppers with a cash voucher for trading in an old car with poor fuel economy when purchasing a new, more efficient car. Dubbed the "Cash for Clunkers" bill, the new law could be a big benefit for new car shoppers looking to capitalize on their trade-ins -- even if the trade isn't in the best condition.
Here's how the bill works: if you have vehicle that's from 1985 or newer, is in running condition and has been titled in your name for at least a year, the government could give you a voucher worth up to $4,500 when you trade it in.
The exact amount of the voucher depends on a few things. If you trade in a car that gets 18 miles per gallon or less for one that gets at least 22 miles per gallon, you get a voucher for $3,500 to put towards the purchase of the new car. If the new car gets 10 milers per gallon more than the old one, the value of the voucher increases to $4,500. All gas mileage values are based on EPA estimates.
If you trade in a truck, SUV or minivan that gets 18 milers per gallon or less, you can qualify for a voucher worth $3,500 is your new truck, SUV or minivan gets at least two miles per gallon more than the old vehicle. If the new truck, SUV or minivan gets five miles per gallon more than the old one, the value of the voucher goes to $4,500.
However, the voucher may not be all it's cracked up to be. The amount of the voucher can't be added to the retail value of your trade-in. For example, if you trade in a car worth $7,000 and that qualifies for a $3,500 voucher, you won't get a $10,500 trade-in allowance. That's because dealers can't resell cars in the voucher program. So, if your old gas guzzler is worth more than the voucher it qualifies for, you'd be better off just taking the trade-in value offered by the dealer. Also, the vouchers can only be used in the purchase of new cars that cost less than $45,000 -- so you're not going to be able to trade in your old GMC Jimmy for a flashy new Tesla Roadster.
On the plus side, the program would apply to people who want to lease new vehicles rather than purchase them. The voucher amount could go a long way toward paying the money due at signing for many leases. However, the clunker you turn in must be one you own; leased vehicles are not eligible for vouchers.
The bill isn't law yet. It still has to pass the Senate, where there are reports of opposition. As the bill stands now, you can use the voucher to purchase any make of car, and some lawmakers would like to restrict the vouchers for use in purchasing American cars only. Plus, the bill as it currently stands means buyers can only use the vouchers for new cars, leaving used car buyers out in the cold.
Still, the bill has the support of the president, automakers and car dealers. Similar bills in other countries have helped auto sales. But boosting sales isn't the only point of the legislation. It also seeks to cut pollution by pulling high-emissions cars off the road, and cut America's dependence on foreign oil by reducing demand for gasoline. Because of that goal, cars traded in under the program would have much of their drivetrains destroyed so they can't be reused. Other parts from the cars may be resold, however.
While the bill isn't finalized, it does look like some sort of cash for clunkers legislation is coming, which means hanging onto your less-than-perfect old car for a little while longer may result in a pretty sweet payoff.
If you think you might want to take advantage of the program, it's time to start shopping for a new car. Check out the U.S. News rankings of this year's best cars as well as the best car deals currently being offered. Remember, the cash for clunkers voucher is in addition to whatever incentives manufacturers and dealers are offering, so the savings could add up. Visit our Cash for Clunkers page to see if your car is eligible for this voucher
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