According to one of the country’s leading loan providers, the new government scrappage scheme for cars could well help to kick-start an industry that has been struggling terribly in recent months. The lender also noted that the scheme could well see a rise in the number of car loans taken out as people who could not previously afford a new vehicle, will look to replace their old car with a newer, greener model.

This week saw the release of the AA Personal Loans Car Purchase Index, which measures trends within the motoring sector including sales, loans and financing and according to the index, the new scrappage scheme could well be a vital tool for combating the recession.

Scrappage scheme welcomed by report

The new scheme, which was confirmed in the latest budget, will see many driver’s become eligible for a discount of £2,000 on the new car, financed by the government.  Similar schemes are already in place across mainland Europe including Germany, France and Italy and are aimed at people who own a car, which is over ten years old.

If the British scheme closely follows those of the EU countries, it is likely that drivers will have to prove that their vehicle has been taxed and on the road and that they have owned it for a specific length of time, usually around six months.

The president of AA Insurance, said:"I have been involved with ministers in trying to get them to introduce a scrappage scheme. It appears that the Government has looked closely at the German scheme, even though there are other schemes in Austria, France, Italy, Portugal and other countries."

King added that he thought restrictions on the emission standards available under the scheme would be unnecessary red tape because the vast majority of new cars would be cleaner than the cars being scrapped.

A spokesman for the AA said that with the introduction of such a scheme, the number of personal loans taken out by Brits is likely to rise as many people put aside short-term financial worries to take advantage of the scrappage deal.

While many people have been shying away from loans in recent months and instead looking to pay off previous debts and even overpaying on their mortgages, it is hoped that the once-in-a-lifetime chance of the £2,000 voucher will encourage enough people to consider purchasing a new vehicle.

The report also found that the average personal loan, taken out to buy a new car had remained consistent, at around £8,000, which according to Mark Huggins from the AA’s personal loans division, could mean some may well be able to afford a new car for the first time.

He said: "We have also found that, despite the downturn, the average personal loan for a car has stayed at around £8,000 which means that the scrappage scheme will enable some families to buy a new car for the first time."

Huggins added: "We're delighted that Mr. Darling's Budget has recognized the benefit of this scheme. The pot of £300 million could benefit 300,000 drivers."