If this question were being answered just a few years ago, it would be an easy answer: Buy a good used car. You would get more for your money. You avoided the high first-year value depreciation. Although you risked buying someone else’s problems, you reduce those risks by buying a car, such as Honda or Toyota, that have high reliability and high resale values.

However, the car-buying world has changed. It has changed dramatically. Old rules don’t apply anymore.  Old advice is not valid now. It’s a completely new world.

What’s changed?

Let’s look at used cars first. Used car prices are at record highs right now. Why? There’s a big shortage of used cars that was created over the last year or so because 1) consumers cut back on buying new cars due to the bad economy; they held on to their old cars longer, and 2) the success of the the “cash for clunkers” program that took many good used cars off the road and caused them to be destroyed. The shortage has decreased supply, which has caused dealer wholesale auction prices to increase , which has caused retail prices to rise. Buying a used car now is simply more expensive than in the past.

Now, let’s look at what’s been happening with new cars. Average new-car prices have fallen dramatically recently. Why? With all the heavy incentive programs (rebates, bonus cash, loyalty bonuses, factory-to-dealer cash, 0% loans, special lease deal, free maintenance), brand new cars are the best bargains they’ve ever been. Car manufacturers and dealers are desperate for customers’ business. Deals have never been better.

The result of all this is that the actual drive-out price difference between new cars and used cars has been greatly reduced. In fact, it’s not difficult to find brand-new car prices that are actually better than prices for the same model used cars that are one or two years older. Old arguments for buying used cars are not as compelling any more.

The current deals end on August 31, 2009.

The new Chrysler  incentives are in the form of large customer rebates and 0% APR loans. Of course, you can’t accept both a rebate and a loan deal. It’s one or the other, not both.  The 0% APR loans apply, in general, to 36/48/60/72 month loans.

In most cases, with large rebates such as those being offered in August, the rebate is the better deal, especially if you are short of down payment money. The rebate can be applied as your down payment.

There are currently no factory-to-dealer rebates or special lease deals on Chrysler vehicles at this time. You may know that Chrysler no longer offers its own car leases but you can still lease because dealers have made separate arrangements with credit unions, banks, and finance companies. For more about car leasing, visit LeaseGuide.com.

Here are some of the great deals now available from Chrysler, Dodge, and Jeep. These are all for 2009 models.

Chrysler Sebring / 300 /Town and Country – $3500 factory-to-customer rebate, 0% interest loans

Chrysler Aspen / PT Cruiser – $4500 customer rebate, 0% loans

Chrysler Pacifica – $3000 rebate, 0% loans

Dodge Grand Caravan / Charger – $3500 rebate, 0% loans

Dodge Durango – $4500 rebate, 0% loans

Jeep Grand Cherokee / Commander – $4500 rebate, 0% loans

Other deals and incentives are available on models not listed here.

Remember, if you are participating in the “cash for clunkers” program, the above incentives are added on top of your $3500 or $4500 clunker trade-in credit.

You can get free price quotes on any of the above Chrysler, Dodge, or Jeep vehicles from Edmunds.com. The quotes will automatically include any cash-back rebates or discounts that are currently available.

The program is officially called the Car Allowance Rebate System (CARS) and went into effect on July 24, 2009, although some dealers were offering the program earlier.

Here is how the cash for clunkers rebate program works:

Your car must be less than 25 years old. It must be driveable. You must have owned it and had insurance on it for the last year. It must have had an original 18 MPG overall city/highway fuel rating, or less.

You must trade your old car for a new car with at least 4 MPG higher rating ($3400 credit) or 10 MPG higher rating ($4500 credit). SUVs, small pickups, and minivans only require a 2 MPG improvement, and vans and large trucks only 1 MPG improvement.

The new vehicle must be a brand new vehicle that has never been titled — not a used car. The list price (MSRP) must be less than $45,000. The minimum mileage rating for a new car is 22 MPG, or 18 MPG for a SUV, small pickup or minivan, or 15 MPG for large vans and trucks.

Your clunker trade-in vehicle must be destroyed by the dealer. It cannot be fixed up and resold. The idea is to get it off the road, forever.

The CARS cash for clunkers program is funded for “only” $1 billion. The program is over when the money runs out, or on November 1, 2009, whichever comes first.

[UPDATE:  The CARS program exhausted the entire $1 billion in the FIRST MONTH. The government has now added $2 billion more to keep it going — probably only for two more months. If you are thinking of taking advantage of this program, do it SOON.]

If your car qualifies, the $3500 or $4500 government rebate on top of any other manufacturer rebates and dealer discounts can make for some incredible car deals. You might even be able to work  out an almost free car.

What’s the catch with the program? If your old car is worth more than $3500 as a trade-in vehicle, the CARS cash for clunkers program is not advantageous to you. For example, if your old car is worth $5000 as a trade-in vehicle, it’s better to accept a dealer’s trade offer of $5000 rather than accept the government’s $3500 rebate.