Scrappage scheme stimulates increase in value of personal loans for cars

Despite a rocky start, it seems the Government’s car scrappage scheme is succeeding in its mission to stimulate the motor vehicle market in the UK.

The UK car scrappage scheme was announced in the Budget speech on April 22nd, and allows owners of cars and small vans registered before 31st August 1999 to trade them in at participating dealers for a £2,000 ‘scrappage’ allowance against a brand new unregistered car or van. Now, new figures from Sainsbury’s Finance suggest that the scrappage scheme is directly responsible for a 37% increase in the value of personal loans taken out to purchase cars in the 3 months immediately after 18th May 2009, when the scheme was introduced, compared to the average monthly value before the scheme began.

According to the report, an estimated £61.2 million of personal loans per month have been taken out to purchase cars in the UK since the scheme launched, compared with a monthly average of £44.7 million in 2009 beforehand. The monthly average loan value for a car purchase is £7,515.

Steven Baillie, Head of Loans at Sainsbury’s Finance said:

“Since the Government’s scheme has been introduced we have seen a sharp spike in the number of loans people are taking out in order to buy a car, which is hopefully a good sign that the motor vehicle market is coming back to life. People considering buying a car, however, must remember to shop around for the best value loan they can find if this is how they decide to fund their vehicle – it can make a big difference to their repayments.”

Meanwhile, the latest figures from finance website Moneyfacts.co.uk suggest that personal loan rates continue to rise.

Michelle Slade, spokesperson at Moneyfacts.co.uk commented:

“In the last six months alone, £335 has been added to the cost of the average £25,000 personal loan, taking the total increased cost for borrowers on a £25,000 personal loan since the crunch began to a staggering £1,804. Unemployment continues to rise and lenders are worried that an increased proportion of their customers will default on their loan. It is highly likely that new customers are paying an increased premium to cover the defaulting customers who took out loans the previously more competitive rates.”

“The upward trend in rates looks set to continue. Anyone in need of a personal loan, really needs to ensure they do their homework to find the best deal possible or they will be left severely out of pocket.”

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(Photo by iboy_daniel)