As of today (June 10, 2009) the House has approved the “cash for clunkers” program which would give up to a $4500 voucher for turning in your less fuel efficient vehicle for a brand new fuel efficient vehicle. The amount of your voucher would be determined by the class of your vehicle and how much of a difference your new vehicles miles per gallon compares to your old guzzler’s mpg.
Great for the Economy or Trap for Consumers?
So if we look at this a little closer what does the $4500 buy you? Well if we refer to AAA’s cost of owning a vehicle research we see that $4500 essentially covers your first year’s depreciation on the vehicle assuming you actually apply that voucher to your car payments. But are consumers really going to do that or are they going to buy a new iPhone and Flat Screen TV to go along with their new car. You could purchase quite a few slankets for $4500.
Real Cost of Trading in Your Clunker
First off you are going to have to deal with the emotional loss of your clunker as they are going to crush it so that no one else can ever submit the Ozone Layer to the pain and suffering you have inflicted. Then you get the privilege of owning a new vehicle that is going to be immediately worth less than you bought it for and you will get to continue to pay on for next 6 years or however long you finance it.
Let’s just do some math. If we buy a new car at $35,000 with 0% on our down payment for 6 years at a 5.49%APR our monthly payment would be $572 and we would have paid $6160 at the end of our loan on interest. But you’ve got your $4500 voucher, somehow seems less compelling.
A Better Plan
I have an idea why don’t you take the money you were going throw at your car payments of your new American vehicle, save them for a bit and buy yourself a really nice used American vehicle at a quarter of the cost. What if you just took the $572 and saved it for one year at 3% interest, you’d have $7548.57 which is a nice chunk of change to buy yourself a good used car.
We’d love you to weigh in on this in the comments, how do you feel about your tax money being spent on this bill?