The $4500 CARS Tax Credit Scam

Cash For Clunkers

Unless you're living under a rock or in a cave, you've surely heard about the $4500 tax credit for clunkers (if not you can read about it that link). It's the recent law signed by President Obama that aims to stimulate auto sales while also providing incentive to get rid of gas guzzlers. In a nutshell, the way it works is you trade in a vehicle that has a new combined fuel economy of less than 18 mpg, and you purchase a new car with better mileage. All of the details are in this cash for clunkers hub, but that's not what I want to talk about here. I want to talk about the potential scams you may run into with this new law. These are the things you want to watch out for if you're looking to cash in on this program.

First of all, you may come across website in your research that offer to preregister you or sign you up for the tax voucher. This is a scam! There is no requirement to preregister or sign up in advance. There is no tax voucher that is sent to you in the mail. There is no list that you need to get your name on. The way the program works is that when you purchase a new car the $4500 is immediately deducted off the purchase price. There is no line item on your 2009 tax return to fill out. The value of the tax credit you qualify for is immediately deducted off the price of your new car.

Second, there are no fees that should be associated with this tax credit.  If the dealer you are trying to adds an administration fee, or a processing fee, or destruction fee, any other fee specifically associated with your use of the CARS program - RUN!  Then report it to the authorities because it is ILLEGAL.  Before you call in the cavalry though, be wary that your dealer is still free to charge their normal type of fees (whether these fees are worth paying is debatable, but not illegal).  What the CARS act specifically prohibits is charging fees because you are purchasing a vehicle under this program.

Finally, and this is a bit more sneaky, but what is more probable... right now dealerships are seeing dollar signs floating in front of their eyes. This is because President Obama just gave them an additional $4500 of wiggle room in the car they try to sell you. There's a couple things that can happen here, so you need to be cautious when negotiating your price. One thing that your dealer may try to do is "upgrade" your car. You may be coming in for one thing, but he / she might convince you that you should get these new features, and with that $4500 tax credit in your pocket you can afford it because your monthly payment will be lower. Don't fall for this - buy the car you need and stick to your guns.

The other more underhanded trick is the dealer may try to inflate the cost of your vehicle by simply manipulating the monthly payment. A $4500 reduction in your auto loan works out to be $87 / mo. for a 5 year, 6% interest loan. That's some serious cash. Don't let the dealer eat into your tax credit by allowing him to creep up your monthly payment. Negotiate in terms of total dollars, not monthly payment. Also visit a site like and see what dealer invoice is. Your target price should be INVOICE minus INCENTIVES minus TAX CREDIT.

That reminds me of one more thing... taking advantage of this tax credit does not mean you are ineligible for any other manufacturer rebates or incentives. The tax credit is on top of any of those incentives offered by the dealer or manufacturer. Don't let a dealer talk you out of what you're owed because they will end up pocketing that cash for themselves.

If you run into any dealers pulling tricks like this, take your business elsewhere. Find yourself someone you can trust and do business with. I'd be interested in hearing your experiences with the Cash for Clunkers tax rebate system.

Comments 4 comments

mike in NJ 7 years ago

if using the 4500 tax voucher do you still get any trade in value for your vehicle

when using the 4500 tax voucher do you still get any trade in value for your trade?

jm0119 7 years ago Author

You should expect to receive something, however the amount is likely to be minimal in comparison. The dealer is required only to destroy the engine and the drive train. The rest of the car can be stripped for parts and reused or resold elsewhere. You should receive some compensation for your trade in, but it will likely not exceed the scrap value. The thing to realize is that the sum of all the parts resold likely exceeds the scrap value of the vehicle, so the dealer may potentially have another source of profit on the deal. Don't let the dealer tell you that the $4500 is all you get for the trade in.

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jiberish 7 years ago from florida

Like I'm going to turn my paid-off Honda in for a toaster on wheels..NOT! Everything the gov't does is a scam, i'll drive my car till it dies, then buy another used car, that's if they haven't all been sent to China by then. Nice Hubs, very informative.

jack  7 years ago

Hi I just got a new car with the $4500 tax credit 1 week later dealer is asking for more information like pay stubs,bank statment, phone number of freinds do I have to give this informent if I already have the car

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