Is the Government Car Scrappage Scheme for You?

At the outset this car scrappage scheme looks quite a good idea to promote car sales in the UK, but before dashing out to buy a new car, it would be as well to ponder the following important points.

On the Government scheme motorists are offered cash payments when they trade in their old cars for brand new models. Cars and vans bought more than 10 years ago can receive a bonus of £2,000.

On the face of it this car scrappage scheme seems a good deal until the price comparison site uSwitch is checked. www.carinsurances.co.uk/news/2009/May/depreciating-values-make-car-scrappage-scheme-redundant,-says-uswitch.com.html

A Ford Focus – an example of the UK’s allegedly best-selling car - can lose an incredible £8,635 in value in the first year.

"People think they're getting a £2,000 discount, but as soon as they drive off the forecourt they start to lose money, possibly as much as 50 per cent in the first year," says Mark Monteiro, an insurance expert at uSwitch.

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The car scrappage scheme works as follows:

The £2,000 grant is made up of £1,000 from the Government with matched funding from industry.

The scheme will operate from mid-May until March 2010 or until the Government funding has been used.

It applies to commercial vans (up to 3.5 tonnes) as well as cars that were registered in the UK on or before July 31 1999.

The scheme is voluntary, so not all manufacturers or dealers might participate.

Dealers will do all the paperwork for motorists participating in the scheme and arrange for the old vehicle to be scrapped.

The dealer will check that the vehicle being traded in, and the new one being bought, qualify under the scheme.

Old cars will have to be currently registered with the Driver and Vehicle Licensing Agency (DVLA) to the registered keeper making the application, or currently on Statutory Off Road Notification (SORN).

The vehicle will have to have a current MoT test certificate.

The registered keeper must have a UK address.

The registered keeper will have to have been the registered keeper of the vehicle continuously for the preceding 12 calendar months before the order date of the new vehicle.

The new vehicle must be a brand new UK-specification vehicle only.

The scheme will be audited by the DVLA.

So quite a few car scrappage hoops to jump through.

Also, consider the following points:

Of the £2,000 scrappage allowance the Government contributes £1,000 and the remainder comes from the already struggling UK car industry.

In the current recession is the majority of the UK car owning population - already under enough financial stress – able to afford a new car and all that it entails, i.e., higher insurance costs when compared with the insurance cost of their 10 year old car?

We are allegedly striving towards a ‘greener’ future – will the scrappage scheme cause more waste because the price of scrap metal has plummeted since China stopped buying.

We will see ‘England’s green and pleasant land’ covered with piles of scrapped cars? Also consider:

1. When you cancel your car insurance contract mid-term, there will be some loss to you in the amount of premium you get returned. In the majority of cases you will get short period rates, which means you won't get six months of your premium back, if fact you'll be lucky to get four months!

2. Car Insurance premiums for new cars are going to be more expensive. If the policyholder only had third party cover on his ten year old car, then fully comprehensive car insurance on the new car is going to be possibly five or six times what they were previously paying!

Therefore, in the best save-money-guide tradition, think seriously about the personal cost to yourselves of entering the scrappage scheme. If you are looking to save money on car insurance you would be well advised to keep the older car, and if you do limited miles each year, check out your car insurance as it might be possible to save hundreds of pounds on premium costs.

Things are not always what they seem at first glance.

On this point bear in mind the excellent advice given by Stephen Turvil on car depreciation.

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