5 Good Reasons to Keep Your "Clunker"
The United States recently approved another $2 billion in funding for the cash for clunkers program, after the program burned through $1 billion in less than a week. Although the program offers enticing rebates of $3500 to $4500 towards the purchase of a new car, here are five good reasons why keeping your perfectly functional "clunker" could be more sensible and environmentally friendly.
1. Car insurance
Usually it costs more to insure a new car than it costs to insure an old car. If your car insurance goes up by several hundred dollars a year, then it may be worthwhile to just keep your functional car for a few more years and save the extra insurance money you would have paid towards a new car.
2. New debt
If your old car is already paid off and you know that you would need a loan to get a new car, then it may not be prudent to take the plunge right now. The economy has not completely recovered and having as little debt as possible would make your financial situation more secure.
3. Wasted parts
The most wasteful part about this program is that your old car's engine would be completely destroyed and the car's parts cannot be resold. This is not exactly great for the environment and it destroys usable automotive parts that could have been reused by others.
4. Value added
Since the government will be destroying a large amount of perfectly usable cars, the used car market may heat up due to the decrease of supply. It is possible that your used car may end up being worth more than the voucher value after the massacre ends, even if its trade in value is slightly less than the voucher amount right now.
5. More gas
Past data from the Energy Information Administration shows that as cars became more fuel efficient, Americans drove more. This is because that psychologically people know that each mile costs less in gas. It is possible that a person who gets a more fuel efficient car will actually use more gas per year because he or she changes driving behavior.
For those who have an eligible clunker to trade in, there are extremely good deals on new cars. Considering how fast the first $1 billion was spent, I am sure that the new allotment of $2 billion would not last long. Before you send your usable car to its grave through this program, you should definitely consider how much you are really saving after insurance costs and other various fees. If your current car still has plenty of life in it, then it is probably more economical to use it until it dies and save your money in assets that appreciate.
This post was included in in the Economy and Your Finances Carnival.