Since the government introduced the car scrappage scheme, there has been a sharp increase in the number of consumers putting their future debt management at risk by taking on more debts.
According to findings from Sainsbury’s Finance, the car scrappage scheme has been directly responsible for a 37 per cent increase in the value of personal loans taken out by car buyers in the three months immediately after the scheme’s introduction.
The study revealed that £61.2 million of personal loans a month have been taken out by car buyers in the UK since May 18, compared to an average of £44.7 million each month before the introduction of the scrappage scheme. The average amount borrowed to buy a car was £7,515.
Industry experts have warned that taking out unnecessary additional credit can potentially cause the development of future debt problems.
A spokesman for loan comparison site Uswitch.com said: “Consumers should be cautious about taking out a loan unnecessarily and getting themselves into more debt. Also, the benefit of scrappage is undermined by huge falls in value of a new car as soon as it is driven off the forecourt.”
Ivan Cooper, Chairman at debt advice specialists Chiltern, said: “We receive many enquiries from people who have taken out loans and credit cards to pay for cars, only for their situation to change and they can no longer afford the repayments.
“When buying a car, always ensure that you can afford to maintain and service it as just being able to afford the car isn’t enough.
“Some cars are much more expensive to run than others and you run the risk of developing even more unsustainable debts when something goes wrong, or when the car needs its service, which it inevitably will.”
Despite the base rate of interest falling to a historic low, some lenders have increased their interest rates – Marks and Spencer, Egg and Alliance and Leicester, have all implemented rate hikes of up to 1.2 per cent for new customers since the start of September.