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Swappage after scrappage scheme - But don't pay too much

12th May 2010 Print

‘Swappage' has taken over from the government-backed scrappage scheme, with some car-makers offering attractive cash incentives for owners of eight to 10-year-old cars to trade them in for a brand new model.

But according to AA Financial Services, buyers not used to car sales tactics could end up paying more than they bargain for.

Mark Huggins, director of AA Financial Services, says that car ‘swappage' is a welcome development but warns that such deals have to be funded from somewhere.

"People trading in a 10-year-old car might well be stepping into a new car showroom for the first time and can easily get swept into unwise finance deals or other options they don't need.

"Most garages will offer finance but a common tactic is to quote for a loan at a ‘flat' interest rate that sounds attractive. But it is important to know the APR (annualised percentage rate), which tells you the total amount of interest you'll pay each year including any set-up fees." he says.

"This recently happened to a customer. She was quoted a 6% ‘flat' rate which in fact was 13.5% APR - more than twice the figure quoted. This reflects recent findings of Which? Car when two-thirds of 15 mystery-shopped dealers failed to mention the APR, which contravenes the Consumer Credit Act.

"It really is important to compare the APR offered by a dealer with loan rates you could get elsewhere.

"Some garages may also offer a 0% finance deal. But check if additional fees apply, such as loan insurance, set-up or documentation fees and what happens when the deal ends. You may also need to pay a hefty deposit of up to 40 per cent."

Huggins also warns buyers to try to avoid being drawn into hire purchase deals which can be very expensive, the car remaining the property of the finance firm until the last payment is made. A default can result in the company reclaiming the car.

"Lease purchase may also seem attractive, but these schemes aren't for everyone and you end up with a ‘balloon' payment if you want to keep the car when the contract finishes," he says.

Huggins points out that around half of the cars on Britain's roads have a decade or more service behind them. "Our own research showed that a fifth of owners of such cars would consider exchanging them for new models.

"Some manufacturers are in effect, taking the initiative to continue the scrappage scheme which saw more than 370,000 new cars registered - and the same number of old cars scrapped. It helps to bring the prospect of a new car within the reach of buyers who might otherwise never be able to afford one.

"But I am concerned that some buyers are being drawn into taking garage finance that costs more than they are led to believe, so it's very important they do some homework and be sure they can afford to pay for their new car."

Huggins adds that the scrappage scheme has contributed to a faster depreciation rate on many models. "But that's only an issue if you plan to sell the car within a couple of years - if you're going to keep it for say five or six years, the depreciation rate levels off."

The AA's current unsecured loan rate is 8.9 per cent typical APR for a loan of 7,500 and above over five years. It can be arranged online at

Do's and don'ts of car purchase


check the ‘swappage' deals available at different garages and different brands

check what models qualify for ‘swappage' - and that the new car is what you really want

check how the ‘swappage' price compares with a deal without trading in your old car - is the ‘swappage' price as good as it looks?

check the garage finance options and make sure they tell you the APR and what the total amount is that you will pay

compare garage loans with what you can get elsewhere - for instance, AA offers car loans with a typical 8.9% APR for amounts between 7,500 and 14,950

haggle on the price of the car or get extras thrown in

be confident - you are the buyer, you can always go elsewhere

check what your new car will cost to insure

your homework: check road tests in magazines or online to look for performance, fuel consumption, road tax band and insurance band and for any problems such as product recalls


be drawn into expensive finance, HP or lease purchase schemes you'll later regret

accept a ‘flat' interest rate - always ask for the APR as that's what you'll be paying

don't buy add-on insurances you don't need

cave in to salesman pressure to do a deal on the spot - go away and give yourself thinking time

be tempted to pay more than you want to - extras such as sunroof or fancy trim or the next model up might look good but are they necessary? - they may also mean higher insurance

forget that the salesman has targets to meet - if you walk away he may well call you back!