Car buyers trading in old vehicles for new ones under the Government’s scrappage scheme could end up losing money because dealers are refusing them access to cheap finance deals.
Manufacturers who normally offer loans with interest rates as low as 3.9 per cent are charging customers on the scheme up to 10.4 per cent. Drivers could be better off ignoring the £2,000 grant and obtaining a more competitive finance deal after selling their old car separately, according to a study by Parker’s car price guide.
Manufacturers had protested to the Government about having to fund half of the scrappage grant but they appear to have found a way of making their money back.
Toyota normally offers finance deals with rates between 3.9 per cent and 5.9 per cent APR — depending on the length of the agreement and deposit. But with cars bought under the scrappage scheme, the only option is a rate of 8.9 per cent. This means that a new 1.8-litre T2 Avensis with an on-the-road price of £16,565 should drop to £14,565 with the £2,000 cash-for-scrap offer, but eventually costs £17,264, £699 more than the list price.
When buying a Ford Kuga with finance under the plan, buyers are forced to take an interest rate of 7.9 per cent. The 2.0-litre TDCi 2WD Titanium model has a list price of £21,795, which falls to £19,795 with the scrappage discount. However, paying such a high interest rate means a final total of £22,903.
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Under the normal finance agreement for a Kuga the interest rate is as low as 3.9 per cent. Although a deposit needs to be paid on this agreement and it is over 25 months instead of 36 months, payments are lower each month and the final amount paid is also lower at £22,792.
Drivers buying a new Seat under the scrappage scheme with finance may also end up saving little or nothing. Selected models are being offered with 0 per cent finance outside the scheme but 8.5 per cent if the driver applies for the grant.
The Society of Motor Manufacturers and Traders said: “Unlike most European scrappage schemes, which are entirely funded by government, the UK scheme demands an industry contribution of £1,000 to match the Government’s own input.
“In some cases, where manufacturer profit margins are low, they are not able to offer additional incentives which may still be available on non-scrappage models and this may be reflected in the finance arrangements.”