New loans scheme offered for purchasing new cars

The government has announced plans of a new loans scheme allowing people buying new cars to be granted a loan to finance the purchase. This will be introduced in an attempt to encourage consumers to spend which is hoped will repair the motor industry and in turn kick start the economy.

It has been reported that finance companies linked to the auto industry could be able to benefit from the Bank of England’s liquidity scheme, allowing them to offer credit to customers.

On average UK consumers borrow around £20 billion which makes up almost half of all new cars purchased. This figure has fallen dramatically in recent months following the credit crunch, as many companies have been unable to offer credit.

In November, car sales fell by 36.8% compared to the previous year, from 158,735 down to 100,333.

Gordon Brown and Lord Mandelson are urging the Bank of England to make millions of pounds available to potential car buyers. This is likely to cause a lot of debate as it will encourage people to borrow money that they don't have in order to make a significant purchase that may not be necessary.

Environmentalists do not agree with the scheme, saying that the government should be encouraging people to use public transport not encourage

Mr Brown said that the main problems causing the slowdown in the motor industry is the lack of credit available and the fall in demand. “We have to look at what we can do so that that market doesn’t freeze in the way that other markets have,” he said.