"We must not let our rulers load us with perpetual debt." –Thomas Jefferson, letter to Samuel Kercheval, 1816
Sometimes I think about buying a car. We might better call it a "privately owned vehicle" like they do in the Army, to cover all the possibilities.
Having existed at different socio-economic levels, as many of us have, I have used a few different means to do that. Cash works best, for obvious reasons. Credit is offered sometimes to those who don’t need it, but the case of buying a car is different. If you have a paycheck and a bank, there’s a certain faith that you will want to keep the car and finish paying for it. I paid for mine.
The lending situation varies. One time my bank financed a car and after five years I had paid about 167% of the original price of the car. Another time I tried the "zero percent APR" loan offered by the manufacturer. That financing is only for a fixed amount. If the fixed amount is half the price of the car, you have to pay the other half up front. The financed amount was paid back over two years, at zero percent APR, so I paid no interest. Again, cash would have been better, but I didn’t have it all at the time.
What is the value of a trade-in? Not much, you’ll find. If you check kbb.com you’ll find the "blue book" value of your trade-in. I have an old car that’s blue book is around $2000. That’s not much but it could be a good way to get rid of the old car.
If I had gone along with the "cash for clunkers" program, I could have got twice the blue book value of the car toward the purchase of a new one. I didn’t want a new one so I didn’t bother, but $4000 is what the federal government program would have given me.
What we’re learning is that this program cost the federal government about $20,000 per old car. That was not a very good deal for the federal government. So who’s going to pay for the inefficiency of this program, to give people twice what their old car is worth, at a cost of ten times what the old car was worth, per car?
You are, assuming you’re a taxpayer. Even if you took advantage of the program and knocked $4000 off the price of your new Prius, it cost the government $20,000 to give you that, and it will come back at tax time to bite all of us. If you didn’t take advantage of the program like me, you still get to pay. We all got screwed. Do you understand? And that’s just a drop in the bucket.