Car 'Swappage'

Don't pay too much says AA Financial Services

12 May 2010

'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.

Check the APR

"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's 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.

Hidden charges

"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.**

Scrappage success

"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."

Dos 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
  • 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, car 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
  • 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!


'Swappage' schemes are currently being offered by Vauxhall, Toyota, Peugeot, Nissan and others.

* On 30th April, Which? Car published the results of a mystery shopping exercise for car finance among 15 dealers: None quoted the total repayment on a car loan and two-thirds didn't quote the APR. This contravenes the Consumer Credit Act.

** AA/Populus questioned 13,489 AA members online between 2nd and 16th October 2009

Join the discussion in the AA zone


18 May 2010