Should you trade in your old car?

Fluffy die

The government’s new car scrappage scheme has now launched, amid criticism that the £2,000 discount is worth little in the face of new car depreciation.

The scheme, announced in April’s 2009 Budget, allows drivers who have owned a car that is more than 10 years old for at least 12 months to trade it in for a new vehicle. In return, they will receive a £2,000 discount on a new car.

Expected to cost around £300 million, there are currently 38 manufacturers taking part in the scheme including BMW and Peugeot (see full list below). The manufacturers will meet half of the cost of the £2,000 discount, with the government stumping up the rest.

"The scheme has been met with a flood of enquiries from customers. It will provide a boost to the industry and kick-start sales,” said Peter Mandelson, secretary of state for business, at the launch of the scheme.

Set to last from 18 May 2009 until March 2010 - or until government funding has been exhausted - the scrappage scheme aims to boost flagging car sales and rid the roads of polluting older cars.

While there have been initial delays to the start of the scheme (with both Ford and Honda saying there are a number of matters still to be resolved) around 1.5 million drivers are ultimately likely to take advantage, according to credit rating agency, Experian.

How to take advantage of the vehicle discount scheme

The scheme is voluntary, but so far 38 manufacturers have signed up. DirectGov, the government’s consumer website, advises people interested in taking part to contact their local dealer to check it's involved and whether you are eligible or not.

Once a sale has been agreed, the dealer will take care of the paperwork and arrange for your old vehicle to be scrapped. The 2,000 discount will be deducted from the cost of your new car and will be shown on your invoice.

The manufacturers

Allied Vehicles, Bentley, BMW, Chevrolet, Citroen, Daihatsu, FIAT, Ford, Honda, Hyundai, Isuzu, Jaguar, Kia, Land Rover, London Taxis International, Mazda, Mercedes Benz, MG Motor, Mitsubishi, Nissan, Perodua, Peugeot, Porsche, Proton, Renault, Rolls Royce, SAAB, SECMA UK, Subaru, Suzuki, Toyota, Vauxhall, Volkswagen, Volvo, Koelliker UK Ltd, Iveco Ltd, Chrysler, Renault Trucks UK.

The rules

In order to qualify for the scheme your current vehicle must be a car or small van weighing up to 3,500kg that was first registered in the UK on or before 31 August 1999.

The vehicle must also have been registered in your name with the Driver and Vehicle Licensing Agency for at least 12 continuous months. The address on the registration certificate must be in the UK, and the vehicle must have a current MOT certificate in place.

In order to claim your £2,000 discount, you must buy from one of the 38 manufactors taking part in the scheme (see above). You can only claim the discount on a car or small van weighing up to 3,500kg, that was registered in the UK on or after mid May 2009. In addition, the vehicle must be registered in the UK as having no former owners.

Should you take advantage?

The scheme has attracted criticism, with concern mainly arising from the financial impact of new car depreciation. According to, the £2,000 discount will be wiped out in just 88 days. Even taking the discount into account, the UK’s top 10 best-selling cars set to lose £527 each month due to depreciation in year one.

Mark Monteiro, insurance expert at, says: "While the government's car scrappage scheme is a positive bonus for consumers, it seems even this £2,000 payout can't hold its weight against the magnitude of vehicle depreciation, which dents the value a car from the moment you drive off the forecourt. 

“When choosing a new vehicle, motorists should ensure they research the rate of depreciation of their desired new car.”

If you are considering taking advantage of the new scheme, you should also find out how your insurance premiums could change as a result. New cars are generally more expensive to insure - says it can cost 30% more to insure a new model compared with a vehicle that is 10 years old.

"Any motorists tempted to take advantage of the car scrappage scheme should research the cost of insuring their desired new vehicle as a matter of priority, as the cost could be significantly higher than they are currently paying for their old banger," says Monteiro. 

For example, a 40-year-old male driver with nine years no claims would pay around £154.66 a year for insurance on a 1999 Ford Focus Zetec.  If he were to trade this in for a 2009 Ford Focus Zetec, his insurance would increase by 29.9% to £200.98.

Monteiro also warns that drivers may have to pay a fee to cancel their current insurance or move it over to a new vehicle. And, many insurance companies will not replace a new car with a like-for-like vehicle if it is written off in an accident within the first 12 months.

If you are considering taking advantage of the new scheme, the advice is to find out how much your insurance premiums will rise as a result, and work out the real depreciation cost of buying a new vehicle.

You should also make the most of the current climate and haggle with the dealer – just because you are getting a £2,000 discount doesn’t mean you can’t negotiate to lower the price.

If you need to borrow money to finance the car, then do your research in advance. Although interest rates on personal loans haven’t risen dramatically during the economic downturn, there can still a big difference in price between different providers. A loan isn’t the only way to finance a car purchase – you can read more here.

Once your decided how much you can afford to spend on a new car, and taken the £2,000 discount into account, make sure you stick to your budget.


"The introduction of the vehicle scrappage scheme is a great incentive for motorists to step back onto forecourts across the UK and upgrade their older cars for new ones - but they should still do their homework, shop around and haggle for the best deal possible,” says Mike Pickard, head of risk and underwriting at esure.  

"The make and model of your car, its value and insurance group will all have an impact on your insurance premium, so motorists must make smart decisions when deciding on the right car for them and have a clear budget in mind at the outset."