Guide to the Government Car and Van Scrappage Scheme – Money Saving Advice

The experts have a difference of opinion when it comes to saving money by trading in your old banger for a new car just because you can get an extra £2,000 off a new car. The main reason for this government incentive is to increase car sales and to boost the economic situation in the UK. The car industry has been hit badly by the downturn in the economy. They have seen sales drop by nearly a third in the last year. During the past twelve months vehicle manufactures have reduced staff, temporarily closed down factories, placed staff on a three day week and asked the government for help in order to save their industry.

The Government has responded by announcing an investment of £300 million in the scrappage trade-in scheme starting today for all cars that are over ten years old. They will provide car owners with a £2,000 discount on a brand new car bought when they trade in their old car. All cars traded-in will be officially scrapped. Death by a crusher will follow so that the cars will not be resold on the second-hand market. This incentive by the government is expected to last until the £300 million runs out or until March 2010.

There are around 30 million car owners in the UK and it and it is estimated that less than 1% of us will actually qualify for the £2,000 discount from the Treasury before the funds dry up. This government incentive is good news for the car industry and for the thousands of people who work in or are dependent on the car manufacturing sector in the UK today.

To qualify for the governments’ £2,000 car scrappage discount you and the car dealership need to meet the following requirements:

1.      The owner of the new car or van must be the same person who owned the scrapped car.

2.      Your car must be over ten years old. Any vehicle offered must have been registered before 31st August 1999.

3.      Trade-in a ten year old vehicle for a brand new car or van under 3,500 kg.

4.      You will need a current MOT certificate

5.      Any car offered must have a valid DVLA registration documents in the name of the owner.

6.      The owner must have owned the car for at least 12 months prior to trading-in the vehicle.

7.      Initially it was thought that the vehicle should also be legally taxed and insured. After further clarification by the Telegraph Motoring, the SMMT have decided that neither a tax disc nor car insurance will be required.

8.      All cars offered for scrap must be a car or van weighing up to 3,500 kgs

9.      First registration date of new car must be Britain 18th May 2009 and there must be no previous owners of any description and should meet British specification only.  This excludes bargain priced cars unused and already pre-registered and unused foreign specification vehicles.

10.  The new car or van can originate from any motor manufacturer anywhere in the world.

11.  The brand new vehicle should be fuel efficient and low-polluting.

12.  Participating car dealerships need to sign up to the Government incentive to be able to operate the scheme.

13.  Car dealerships are required to contribute £1,000 towards the £2,000 discount being offered by the Treasury Department

Last week the price comparison company uSwitch.com said the £2,000 incentive would effectively be "lost" in depreciation within 88 days of consumers buying a new vehicle within the scheme. The AA responded by backing the scrappage initiative and saying that the depreciation analysis was irrelevant and misleading and that the scrappage scheme would benefit "hundreds and thousands of consumers".

Whilst we understand the reasons for the incentive of £2,000 discount on a new car when you trade-in your old banger. It is important that you have a look at the price of a nearly new vehicle as well. Let me explain. If a new car is £13,000 after the £2,000 discount has be applied and you have the choice of a second-hand car that is six-months old with 5,000 miles, in first-class condition for £10,750. Then you have to ask yourself whether it is worth paying the difference £2,250 for a brand new car that will depreciate within the next 88 days as previously suggested.

Another point of concern is financing a new car purchases and at what cost. Remember that interest rates have fallen and lenders are charging upwards of 7%. Finance lenders still do not have a great appetite for lending. However, arranging finance on a vehicle might be easier as long as you have no adverse credit on your Experian credit report and are squeaky clean financially. The reason for this is that the finance is secured against the car or van and can be repossessed if you stop paying the agreement. Just watch-out for the cost of borrowing – a deal is only a great deal when it does not cost you a fortune