Cash for Clunkers: How it Could Work for You

A 2000 Ford Crown Victoria could be eligible for a credit under the Cash for Clunkers program.

A 2000 Ford Crown Victoria could be eligible for a credit under the Cash for Clunkers program.

If you've got an older, fuel-inefficient car, you're probably wondering how the newly approved Cash for Clunkers law can help you out. Here are the rules and scenarios you'll need to know to take advantage of the legislation, as well as where you can go to get any other information you'll need to make the deal work.

If you're wondering whether you can use this program to buy that new car you've had your eye on, check out our list of new cars — as well as our list of new trucks and SUVs — whose price and gas mileage make them eligible to buy using Cash for Clunkers, no matter what you're trading in.

To take advantage of Cash for Clunkers, you'll need to bring to the dealership your trade-in's title and proof that it's been insured and registered for the past year.

The Rules

First, if you're looking to trade in a vehicle, you'll need to make sure its combined EPA gas mileage rating is 18 mpg or below. Check below if you're not sure how to find that rating. You should also look up the value of the car you're thinking of trading in to see if a $3,500-$4,500 credit makes sense for you; you can find your car's Kelley Blue Book value on Cars.com.

Second, the new car you buy or lease can cost no more than $45,000, and the car you trade in must be a 1984 model or newer. Oh, and you have to have owned and been insuring the car you're looking to trade in for at least the past year before you can cash in on this deal; no dusting off that junker that's been sitting in your garage for years (or buying your neighbor's) and trading it in for a credit. As of now, the program is slated to begin July 27 and run through Nov. 1, or until funds run out.

As far as other limitations, the rules differ slightly depending on what you're looking to buy. If you want to buy a typical passenger vehicle — let's call them "Cars" — there's one set of standards, but if you're looking to buy something from the category the government is calling Category 1 trucks — we'll just call them "Trucks" for simplicity's sake — things change slightly. That category is being defined as including "sport utility vehicles, small and medium pickup trucks and small and medium passenger and cargo vans." Whether or not that includes car-based SUVs, like the Nissan Murano or Honda CR-V, or minivans like the Chrysler Town & Country, we're not entirely sure. The government says it will release a list of all qualifying vehicles "soon," and we'll let you know as soon as we know more.

So:

If you want to trade in your clunker...

1. ... for a new Car: (Remember, "Car" refers to what the government is calling "passenger automobiles"; among other things, this category excludes vehicles weighing more than 6,000 pounds.)

You'll get a $3,500 credit good toward the purchase of any new Car that has a combined EPA mileage rating of 22 mpg or better, so long as the mileage rating for the new Car is at least 4 mpg higher than the one you're trading in.

2. ... for a new Truck: (Again, this term applies to SUVs, small to midsize pickup trucks and small to midsize passenger and cargo vans.)

You'll get a $3,500 credit for a new Truck whose combined mileage is at least 18 mpg, so long as that rating is at least 2 mpg higher than your trade-in.

3. ... for a bigger cash credit: You'll get a $4,500 credit if you buy a new Car that improves on your old vehicle's combined mileage by 10 mpg or more, but if you're buying a qualifying new Truck, it only needs to improve on your old vehicle's rating by 5 mpg or more.

Any vehicle traded in must be scrapped, according to the law. There are stiff penalties for dealers who ignore this mandate.

The Scenarios

As you'll see in the scenarios below, you don't have to buy a hybrid to make Cash for Clunkers work for you.

Scenario No. 1: Your 1999 Ford Crown Victoria gets a combined 18 mpg, according to the EPA. You have your eye on a new 2009 Ford Taurus, but it only gets 21 mpg according to EPA ratings, so no credit for you because it doesn't meet the program's 22-mpg threshold. If you opt for the 2010 Ford Fusion with a four-cylinder engine instead, you'll get a combined 25 mpg and a $3,500 credit. If you want the $4,500 credit but still want a Ford, you could get a manual 2009 Ford Focus (28 mpg combined) or a 2009 Escape Hybrid with either four-wheel drive (28 mpg) or front-wheel drive (32 mpg).

Scenario No. 2: You've got two clunkers (sorry; that's the government's word, not ours) you want to turn in for credits to use toward the purchase of a new car. Can't do it; no single person can be issued more than one credit. Likewise, if you and your spouse are joint owners of a car, you can't both receive credits for it. Theoretically, you and your spouse could each buy new cars using those two old clunkers, but you can't use more than one credit to buy one new car.

Scenario No. 3: You've got a 2004 Kia Sedona minivan that gets a combined 16 mpg. You'd like to trade it in and get a new SUV that gets a combined 22 mpg (say, a four-wheel-drive 2009 Jeep Compass). You'd get a $4,500 credit for that move (because you're buying a "Truck" and your new purchase is rated 5 mpg or more better), but the trade-in value for your Sedona is in the neighborhood of $4,500 and the sell-it-yourself value is estimated to be roughly $1,000 more. The question is, is that potential extra $1,000 worth the effort to sell it yourself, or should you just take the $4,500 credit? Only you can make that decision.

Scenario No. 4: You've got a two-wheel-drive 2003 Chevy Tahoe that's EPA-rated at 15 mpg combined. You want to get an all-wheel-drive 2009 Chevy Traverse (which weighs more than 6,000 pounds and is rated at a combined 19 mpg), meaning it's worth a $3,500 credit, yet the Tahoe's trade-in value is in the neighborhood of $8,000. Therefore, the logical decision here is for you to not use the credit program.

Scenario No. 5: If you would like to buy a hybrid, you can cash in on government deals in a couple of ways. Say you've got a four-wheel-drive 2001 Hyundai Santa Fe (18 mpg) and you want to get something similar, so you're looking at a four-wheel-drive 2009 Ford Escape Hybrid. Terrific! Not only will you qualify for a $4,500 credit — because the Escape gets an estimated 28 mpg combined, which is well more than the necessary 5 mpg better than your trade-in — but that Escape is also eligible for a hybrid tax credit of $975. You'll have to move fast to get that money, though, as the Escape Hybrid's credit drops to $487.50 after Oct. 1, then goes away entirely as of April 1, 2010. See what other hybrid tax credits are available at fueleconomy.gov.

Also bear in mind that Cash for Clunkers has no impact on the cash-back and financing incentives that manufacturers offer; using a credit won't stop you from cashing in on those deals, too.

Where Do I Find Mileage Estimates?

Before you can figure out what kind of deal you can swing using Cash for Clunkers, you'll need to figure out whether your car has a combined gas mileage rating of 18 mpg or less. Even if you already know your car's combined gas mileage, double-check this list because the EPA recently changed its fuel mileage estimates for 164 vehicles. Where can you find your car's combined mpg? Check out fueleconomy.gov and pick your car's year, make and model. If there's more than one entry for your car (because that model comes with a choice of engines or transmissions), click on the linked model name next to the info that matches your car. On the linked page, your car's combined mpg rating will be the one in the center, in red.

If your car is a 2007 model or older, you're in extra good luck: The EPA revamped its estimates beginning with the 2008 model year, typically reducing earlier estimates by a couple of miles per gallon. That means if your car was rated a combined 20 mpg when you bought it in 2007, it likely now has an EPA rating that meets the Cash for Clunkers maximum. The numbers on fueleconomy.gov reflect the EPA's revisions, so whatever's listed for your car is the figure the government will use to determine if the car qualifies.

You'll also need to figure out the mileage estimate for the car you're thinking of buying or leasing (to make sure it meets all the appropriate thresholds). You can get that info from that same EPA site, the automaker's site or by looking at the Monroney sticker on the car itself on a dealer's lot.

Big Trucks

Things get even more complicated if you're trading in your clunker for certain heavy-duty trucks or cargo vans, so we'll let our friends at PickupTrucks.com spell out those details for you.

You can check out even more program details at the familiar-sounding www.cars.gov.

© Cars.com 7/27/09