Should you trade in your old banger?

28 September 2009

The car scrappage scheme is to be extended, with an additional £100 million cash injection to enable a further 100,000 drivers to swap their old bangers for a discounted new vehicle.

Lord Mandelson today announced to delegates in Brighton that the scheme, which was launched in May, will receive additional government funds to cope with demand from drivers. It will now run until February 2010 or until funding runs out.

When launched, the scheme allowed drivers who had owned a car that was more than 10 years old for at least 12 months to trade it in for a new vehicle. In return, they received a £2,000 discount on a new car.

However, as part of the scheme’s extension, the age qualification has changed by six months – meaning eligible cars must have been registered on or before 29 February 2000 (V registration).

The scheme will also be extended to include van owners whose vehicles are eight years old rather than 10. This means eligible vans must have been registered on or before 28 February 2002 (Y registration).

Originally expected to cost £300 million, Mandelson today said the scheme has paid out £400 million across 400,000 vehicles.

“The sector has been strongly affected by the recession, but the scrappage scheme has delivered a boost to manufacturers and the supply chain,” the business secretary said.

The £2,000 discount will continue to be met 50/50 by the government and vehicle manufacturers.

Janet Connor, managing director of specialist insurer RIAS, says its research shows almost one million eligible drivers would be interested in taking part in the scheme – despite limited funding.  

“In the continuing economic downturn the £2,000 scrappage incentive remains an attractive option for people looking to buy a new vehicle, and who are concerned about their motoring costs,” she adds.

It should also help support businesses. Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, says: “[The extension] will help to stimulate demand, giving more consumers access to it, and create a bridge to a period when economic growth is strengthened and more sustainable.”
How to take advantage of the vehicle discount scheme

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 29 February 2000 or 28 February 2002 respecitvely.

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 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. The average car, meanwhile, will lose £8,321 in value in the first year.

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.

Mark Monteiro, insurance expert at, says: “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."

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 – 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."




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