Smart’s $99/mo Cash for Clunkers Deal
Surely you’ve heard about the “Cash for Clunkers” program which subsidizes the purchase of new cars for those who get rid of their old, polluting gas guzzlers. I won’t go into the details, but basically, if you purchase a new car that gets a certain number of miles per gallon more than your current car, you are entitled to a voucher worth $3,500 or $4,500, depending on the amount that your car’s fuel economy has improved. This is basically another form of stimulus from the government to increase new car sales.
Smart is currently advertising a deal with $99/mo payments on a purchase of a Smart ForTwo for 36 months when you get rid of a vehicle which qualifies for the $4,500 “Cash for Clunkers” voucher. Sounds great, right? Well, wait until you read the fine print: there is a $6,667 balloon payment due at the end of the loan!
Subject to credit approval by the lender and the terms and requirements of the CARS Program and associated regulations promulgated by the United States Department of Transportation. $99.00 monthly payment based on customer trade-in of an eligible vehicle qualifying for the CARS $4,500 voucher level, a $70.57 combined contribution by Daimler Financial Services and smart USA, and a 36-month balloon loan with $0 cash due at signing and a final balloon payment of $6,667.50 at the end of the loan term and a $ 13,335 MSRP which includes the destination charge and excludes tax, title and dealer fees. 5.9% APR financing for 35 months at $11.30 per month, per $1,000 financed, plus the final balloon payment.
Now, to be fair, if you are able to use this incentive, financially it is not a bad deal at all for a new car (only because of the $4,500 voucher). My gripe with this is not really about the cost, but about the way that it is advertised. The $99/mo payments are advertised very prominently to get people in the door, and only when you’re about to sign off on the paperwork so that you can drive home will you find out about the big balloon payment.
This is, of course, similar to how we got into the “credit crunch” that we’re in right now – people getting lured in by initially low payments and getting hit with something they can’t afford a few years down the road in the form of higher interest rates. Hopefully the finance people at Smart will keep this in mind and properly qualify their buyers.
The moral of the story is this: never, ever make a decision to buy based on monthly payments alone. Always consider the entire deal – the sum total of the payments. Never negotiate on monthly payments either, because car dealers will try and put you into more expensive cars with longer loans which still end up with lower monthly payments. Or, they may try to give you a low monthly payment as long as you give them a big down payment, which still does not end up in a good deal. Worse yet, they may stick you with a lease which has low payments, but costs you more in the overall scheme of things.
Going beyond just the terms of the loan, before you purchase a car, always focus on the total cost of ownership. Make sure you have at least looked at what the depreciation, fuel economy, insurance, repairs, maintenance and interest are going to cost you, and that you can actually afford it. Old supercars, for example, can be had for $20,000 to $30,000, but the fuel, maintenance and insurance costs will be a killer if you aren’t expecting them. Don’t be caught off-guard.
