July 31, 2009 Update: The Cash for Clunkers program has turned out to be way more popular than Congress expected – they’ve burned through $1.2 billion in less than a week.

The House authorized another $2 billion dollars with the Senate expected to vote on Monday. If you’re interested in participating, negotiate your deal this weekend as all deals will be honored according to the White House.

CNN is also recommending that you “make sure you don’t sign a waiver that forces YOU to pay the voucher if your deal doesn’t go through. And, have the dealership wait to destroy your old car until they are absolutely sure that you are getting the voucher money.”

Have you heard the federal government will give you cash for your “clunker”? It’s true!

Officially known as Cars Allowance Rebate System (CARS), it’s typically known as “Cash For Clunkers” and you can get $3,500-$4,500 in credits if you trade in your old car or truck.

Scam: Scammers are getting folks to pre-register or provide their Social Security number to be part of the program.

Truth: You don’t have to register or obtain any sort of coupon or voucher. The deal will deduct the correct amount of the credit when you purchase.

Facts: The CARS program only applies to the purchase or lease of a new vehicle Here’s more:

1.       Your vehicle must be less than 25 years old on the trade-in date

2.       Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)

3.       Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in

4.       Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.

5.       The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

For more information on CARS, visit www.cars.gov or call the CARS information hotline at (866) CAR-7891 (227-7891).

The Real Question, Though, Is…

Should you purchase a new car under this program?

Basically, the answer is that you shouldn’t use the new program unless you were already planning to make a new car purchase.

For one thing, you will only get scrap value for your trade-in. So, if you have a 2000 Jeep Cherokee 4 door AWD, Edmonds says the trade-in is $3289. But if you’re doing Cash for Clunkers, you’ll get the maximum credit + scrap value. So, you may not actually only much more than you would have if you had traded in your Jeep.

And, you’ll have a payment where you didn’t have one before.

At Edmunds, they have a calculator to figure out how long it will be before you pay for the car just with gas savings.

Let’s run a scenario of purchasing a 2010 Toyota Camry Hybrid and giving up your 2000 Jeep.

The cost of the Toyota Camry Hybrid is $26,150 – $4,500 (maximum credit) and let’s say $500 in scrap value. So, the new car cost would be $21,150.

At 33 mpg hwy (your mileage overal would undoubtedly be lower) for the Camry and driving 1,000 per month and assuming $4.25/gallon for gas, it would take at least 137 months (11.5 years) before you’d break even. And that’s not counting any additional insurance cost.

And, your car payment would be around $408 ($21,150 financed at 6% for 5 years)!

What could you do with $408?

If you can afford $408 per month, you could pay down debt or start saving for the new car.

Bottom line is that this program is designed to move cars. You’re the only one who can really determine if it’s a good program for you and your family.

P.S. Don’t ever give out your Social Security number or other personal information unless you initiated the call or contact.