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Cheap Personal Contract Purchase

How to find the best deal for you

Benjamin Taylor
Benjamin Taylor | Edited by Johanna Noble
Updated 25 March 2024

If you need a new car, but don't have the cash to pay for it, then car finance could be a way to get behind the wheel of one – though it's a big commitment. Here we've broken down the basics of Personal Contract Purchase (PCP) car finance, so you can work out whether it's right for you.  

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IMPORTANT! Did you buy a car on Personal Contract Purchase or Hire Purchase before 28 January 2021?

If so, you could be due £1,000s back. This follows the launch of a Financial Conduct Authority investigation into hidden, unfair car finance commission. Take a look at our Free car finance reclaim guide and tool to find out more and see if you may be affected.

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What is Personal Contract Purchase?

Personal Contract Purchase (PCP) is basically a loan to help you get a car. But unlike a normal personal loan, you won't be paying off the full value of the car and you won't own the vehicle at the end of the deal (unless you choose to pay a much larger final payment).

It's one of the more complex financial products available to help you buy a car, but it can be broken down into three main parts:

  1. The deposit (usually about 10% of the car's price). Do note that some car manufacturers' finance arms offer valuable 'deposit contributions' of £500 to £2,000 or more if you're buying a new car – but only if you take their finance. The larger the deposit, the less you'll have to borrow. 

  2. The amount you borrow. You borrow the value of the car from the finance company, minus the deposit. However, your repayments aren't designed to pay this whole amount off.

    Rather you'll pay off the amount you've borrowed, less the amount the finance company sets as the 'balloon payment' (a large payment you pay at the end of the deal if you want to keep the car – see the next part).

    Your monthly payment is this amount divided by the term of the deal (usually 24 or 36 months) minus the deposit you've put down, plus interest. Typical interest rates start from about 4%, though some dealers may offer 0% interest. Be wary of these as they are likely to try to recoup their losses somewhere else by, for example, inflating the balloon payment.

    You can sort your own finance from an online lender or broker, or you can use a finance company that works with your chosen dealership.

    Whichever you choose, the finance company will pay the dealer the full amount for the car (less your deposit). You will then make your payments to the finance company during the term, and it will own the car (you will be the registered keeper).

  3. The balloon payment (a large final payment you pay IF you want to own the car). Also referred to as the guaranteed future value (GMFV) or optional final payment, this is how much the finance company expects your car to be worth after your finance deal ends, agreed at the start of your deal.

    You don't have to pay this, as you get a choice of what to do at the end of the deal. But it is the sum you'll pay if you want to keep the car.

    The finance company (not the dealership) will contact you towards the end of your deal to ask whether you'll pay the balloon payment, hand the car back, or – if the car's worth more than the agreed balloon payment – whether you want to trade it in and use the extra as a deposit for a new deal.

Not the car finance option you were looking for? Check these out...

Personal car loan | Hire Purchase | Car leasing

Also see: Compare personal loans

How does PCP finance work?

Personal Contract Purchase is one of the more complicated forms of car finance, so here's an example to explain it:

  1. You agree to purchase a car for £20,000 over three years and the finance company calculates the car will be worth at least £8,000 at the end.
  2. You pay a 10% deposit (£2,000) with a loan for the rest (£18,000).
  3. You then owe £18,000. Though, as it's been agreed that the car will be worth £8,000 at the end, you only need to repay £10,000 (plus the interest on the entire £18,000) over the three-year period. This is typically done in monthly instalments. 
  4. So, say your PCP deal had an interest rate of 7% APR – based on the amount you're borrowing and the length of term, your monthly repayments would be about £350.
  5. At the end of the agreement, you pay the final £8,000 if you want to keep the car, or choose to hand the car back/take out a new PCP deal.

Importantly, even if you hand the car back, you will still have paid interest on the full loan amount (£18,000) over the three-year period, and the finance company remains the owner throughout the term of the PCP agreement.

You may be able to find no-deposit deals, but these are usually rarer. Often car finance deals will have a fixed rate of interest attached – ignore this, you're looking for the annual percentage rate, or APR, as this includes all interest and charges. Legally, the APR has to be stated so look for it, and ask if you can't find it.

Alternative types of car finance to consider

This guide focuses on Personal Contract Purchase (PCP), though before you go on, do check these alternative types of car finance to assess if they'd suit you better. 

Broadly speaking, there are six different ways to pay for a car. The table has the key differences at a glance, before we run through the alternatives to PCP in more detail.

Comparing ways to finance a car purchase

Finance type Typical length of agreement? Initial deposit required? Who owns the car? Mileage restrictions?
None – cash savings N/A N/A You No
0% credit card Up to 25 months No You (though you'll still need to repay the debt) No
Personal loan Usually 1 to 7 years No You (though you'll still need to repay the debt) No
Personal Contract Purchase Usually 1 to 5 years Yes (i) The finance company, unless an optional final balloon payment is made Yes (ii)
Hire Purchase Usually 1 to 5 years Yes (i) The finance company, until the final repayment is made, then you No
Leasing/Personal Contract Hire Usually 1 to 4 years Yes (i) The finance company, at all times Yes (ii)

(i) In most circumstances, though sometimes you can get a deposit contribution from the dealer or structure a lease deal to pay nothing upfront. (ii) You'll usually agree an annual mileage limit with the finance company at the start of the deal & will pay additional fees if you are over this when handing back the car.

Sadly, there's no 'one-size-fits-all' answer to which wins (as much hangs on whether you want to own the car and other factors). However, we've included more information on each alternative to PCP below, to help work out which is right for you.

  • Cash savings – the cheapest option for most cars

    The clear winner if you want to own the car fully from day one, as you'll avoid paying any interest or taking on debt. Though, if you're looking to buy a brand new car – which on average loses about 40% of its value by the end of the first year – and are likely to change it in the next few years, it's worth considering leasing or a Personal Contract Purchase deal. With these, the overall cost of ownership can work out cheaper.
  • 0% spending credit card – no interest if you can get a big enough credit limit (and the dealer accepts cards)

    Depending on the price of your new car, a 0% spending credit card could be the next cheapest way to borrow. You'll own the car outright (like paying in cash) plus you'd be covered by Section 75 protection. However, you'd need to check whether the car dealer accepts payment by credit card, as not all do.

    Unfortunately, you usually won't know what credit limit you'll get before applying, and you should budget to pay the debt off before the 0% period ends, as the interest rate rockets after then. The longest cards typically offer up to 25 months at 0% interest – see our 0% spending cards guide for more information. You can also read more about credit cards generally in the Credit cards and loans section of our website. 
Computer screen, reading "loan application".
  • Personal loan – usually cheapest if you need to borrow and want to own the car outright

    This won't be at 0%, but may allow you to borrow more and over a longer period than you'd get on a credit card. Repayments will be structured for you to clear the debt at the end of the term, which is usually between one and five years.

    Using a loan to buy the car means you'll own it outright. See our Cheap loans guide for the best buys and full help, and check our personal loan calculator to learn find out how much you could borrow and how much interest you would pay.
  • Hire Purchase (HP) – an option if you're struggling to get a cheaper loan, though the lender owns the car until you've made all the repayments

    This works in a similar way to a loan – as you're borrowing and paying off the full cost of the car – though here you won't own it until you've made the final payment. Instead the car is owned by the finance company as it uses it as security against the loan (like a mortgage), so if you fail to pay, it can seize the car.

    This security can mean an HP deal will be easier to get than normal loans, though you'll usually need to pay a deposit (often 10% or more of the car's price). You'll therefore need to consider how to fund that.

    Like with PCP above, the dealer will be making money from the finance deal, so it may offer larger discounts or contributions to the deposit on new cars. For used cars, this may mean you can haggle some money off. Always be careful to calculate the total cost you'll need to repay taking into account all interest. This will show the 'true' value of the discount. See our Cheap Hire Purchase guide for more.
  • Car leasing/Personal Contract Hire (PCH) – low monthly rental payments, but you'll never own the car (nor have the option to)

    This is a way to get a brand new car for a monthly payment, though this is essentially a long-term rental, so you'll never own the car – nor have the option to buy it. Instead you'll pay an initial deposit followed by a monthly amount for the duration of the contract, which is usually over one to four years.

    As with PCP, you'll need to choose a mileage allowance (for example, 8,000 miles a year) and you're responsible for the car's upkeep. At the end of the agreement, you simply return the vehicle (though you could be charged if you've exceeded the mileage or damaged it). See our Cheap car leasing guide for full help.

Personal Contract Purchase need-to-knows

If you think Personal Contract Purchase (PCP) is right for you, here are the need-to-knows to understand before opting for a new agreement.

  • 1. The final balloon payment is based on the car's make/model, mileage and the length of deal

    Dealers calculate the balloon payment by predicting the value of the car after depreciation – the value the car loses over the contract term.

    How much it will lose depends on several factors:

    • The make and model you're buying – some lose value quicker than others.
    • The length of the agreement – for example, a car will usually be worth less after three years than two.
    • Your agreed annual mileage – for example, a car with 40,000 miles on the clock after three years will be worth less than one with 20,000.

    Car finance companies often use specialist car valuers such as Cap HPI, Parkers and Glass's Guide to help predict what a car's future value will be, by looking at previous depreciation of similar car makes and models.

    This predicted value of the car is called the 'guaranteed minimum future value', or GMFV, and is what the balloon payment is based on.

    The finance company can also apply its own risk assessment on top of this value, so balloon payments can vary between finance providers.

  • 2. Though you won't own the car, you're usually responsible for insurance, parking/speeding tickets and general upkeep

    The finance company remains the legal owner during the PCP agreement, but you're recorded as the registered keeper – so you'll be responsible for any parking or speeding tickets, servicing costs and insuring the car. So you'll need to factor these costs in on top of your monthly payment. 

    Dealers will sometimes throw in service and maintenance packages, warranties and insurance, though always check these are free, or represent good value. See our Cheap car insurance guide for full help in cutting insurance costs.

  • 3. You've three main options at the end of a PCP – buy the car, hand it back or get another

    At the end of your PCP contract, you usually have three options:

    1. Buy and keep the car by paying the balloon payment. Pay this then you'll own the car outright. Do note that most finance companies charge an added fee if you buy the car at the end of the contract – this covers admin costs to transfer the vehicle. It can be up to £500 but is usually lower: about £100 is standard.

    2. Trade in your car to get a new PCP deal. This is a common option, but there are two different ways this can work:

    - Trading your car and starting a new deal with the same dealer/finance company. This is the most common option for people taking a PCP car deal. Usually at the end of a PCP contract, the car will be worth slightly more than the balloon payment. If this is the case, your dealer will usually ask if you want to use that 'equity' as a deposit on a new PCP deal on a brand new car – otherwise known as part exchange.

    For example, if the car's actual value at the end of the deal was £9,000 and the balloon payment £8,000, you'd have the difference of £1,000 that you could use as a deposit to roll into your next car deal. 

    - Trading your car to get a new PCP deal with a different dealer/finance company. If you have a PCP agreement with a certain manufacturer's finance arm (for example, BMW Finance) then you'd usually only be able to trade your car in for another one within its range. So a BMW for another BMW, for example. 

    If you want to switch brands, you'd typically need to pay the balloon payment so you own the car. You can then trade it in with the new dealership as the owner of the car. If you can't afford the balloon payment, you'll need to stick with the same dealer to get a new deal, or hand the car back to the finance company, as below. 

    3. Hand the car back and walk away. If the car is worth less than the balloon payment – that is, if it's lost more value than was expected at the start of the deal – the sensible course is just to hand the car back at the end of the PCP contract as the finance company takes the hit. 

    If the opposite is true, and the car is worth more than the balloon payment, unfortunately you can't take the extra as cash. You'd need to buy the car and then sell it privately or trade in as above, or get agreement from the finance company to sell it and then pay off the finance.

  • 4. You'll pay hefty fees at the end if you damage the car or exceed the annual mileage allowance

    Whether you're trading your car in or handing it back and walking away, you could face additional charges. The finance provider will usually appoint someone to inspect the car when it's returned to advise if anything further is owed:

    • Over-mileage charges. At the start of a PCP car deal, you'll be asked to specify how far you'll drive the car each year. This is so the dealer can accurately assess the car's worth at the end of the deal to set its future value. A car that's done 10,000s of miles will be worth a lot less than a car that's only been used infrequently.

      It's important to be as accurate as you can, as if you go over the agreed mileage limit, the finance company can charge for every mile you are over, often by about 10p a mile. Be careful as this can soon tot up – for example, at that price, an extra 1,000 miles would cost you £100. 

    • Damage charges. Just like when you rent a car, the finance company will check it for damage when you hand it back. Normal wear and tear is acceptable but the car needs to be in a saleable condition, which means you'll likely be asked to pay to put right any large scratches or damage anywhere on the car.

    You can avoid these charges by agreeing a sensible mileage and taking good care of the car. Always request a copy of the dealer or finance company's fair wear and tear policy at the start of the agreement, so you know what fees to expect. If there's damage, it's worth going to an approved service centre to see if it'll cost less to fix than the finance company will charge – it may be worth getting it fixed yourself.

  • 5. There are ways to end the agreement early, but it can be costly

    To get out of the contract early there are a couple of options:

    Voluntary termination

    Under the Consumer Credit Act 1974, you can legally terminate your contract if you've paid over 50% of the total cost of the loan, including interest and the final balloon payment.

    Car finance companies won't usually like this as they will often be taking back a car worth less than the remaining payments, so be aware that a voluntary termination of your contract might not be made easy for you. They may try to convince you to try other financing options, and it might take longer to process than you'd hope.

    You'll still need to pay charges once the contract has been terminated. These include admin fees, such as a fee for collecting the vehicle, as well as charges for any damages or excessive mileage.

    A voluntary termination will show up on your credit file, although it shouldn't affect your credit score as much as clinging to a contract you can't afford and missing out on payments.

    Also note that a voluntary termination differs from a voluntary surrender, in which less than 50% of the loan has been repaid. The finance company will take the car but you'll still have to pay the remaining balance of the contract. 

    Early repayment

    The finance company only guarantees the value of the car at the end of the agreement. So if you want to sell your car two years into a four-year deal, you'll have to pay the difference between what it's worth and what you still owe.

    Say, for example, at the point you want to repay, your car is worth £15,000 but your finance settlement figure is £17,000 – you'd have to pay the extra £2,000 to the dealer to clear your 'negative equity' before you can get out of the deal.

    Some finance providers will charge you an extra fee on top to settle early, some won't. Check the fine print before you sign up if you think you'll want to do this.

  • 6. You normally need to pass a credit check, and could lose the car if you miss payments

    When you apply, the lender will normally do a credit check to decide whether to lend to you, and this check will appear on your credit file as an application for credit.

    Credit checks for HP aren't usually as stringent as those for personal loans. This is because all car finance is secured on the car – if you don't pay, the lender can just come and repossess the car, whereas for loans there's no security, so it'd need to chase you through the courts.

    If you find you're not able to make repayments, always contact the lender – ideally before the next payment is due. If it knows you're struggling, it should help you by offering an alternative and affordable repayment plan.

    If you miss a payment, it's likely the lender will contact you to see what's wrong. If you keep missing payments, it'll mark you as in 'default'. Once this happens, it'll usually take back the car quite quickly, as to leave the vehicle with you while it chases payments risks the car's value depreciating even more.

    As well as the company taking the car, if you fail to keep up repayments, you'd get a default mark on your credit file, which could affect your ability to get a mortgage or other credit. See our Credit scores guide for more info.

Where can I get a PCP deal?

There are two main options here. The most common is to get the finance through the dealership you're buying from. However, before you start, it's worth getting quotes from online brokers first, so you can compare with the dealer's offer. It's also worth taking a copy of the cheapest quote along so you can ask it to match or beat it. 

Important. Spending £100 to £30,000? Pay just a penny on a credit card for purchase protection

Pay something towards your car on a credit card, and you get powerful extra protection if something goes wrong down the line. This is because you're then covered by Section 75 laws.

Provided that the total cost of the car you're buying is between £100 and £30,000, paying anything towards it by credit card means the card company (or finance company in some cases) is equally liable along with the dealer if things go wrong.

However, this isn't always straightforward. Some dealers don't accept credit cards and some may only allow you to pay a limited amount by card. So figure out how important this is, and ask your chosen dealer if it can accept cards before deciding how to pay.

Online lenders & brokers

Personal Contract Purchase (PCP) deals can be found from a handful of lenders and brokers. These are handy to get an idea of the prices and repayments you might be looking at on your ideal car. Brokers offer a wide range of PCP deals, including those for buyers with a tarnished credit history – they simply supply the finance through a variety of lenders.

Some brokers will also be able to source vehicles for you, as well as finance. But you can still get your car from any dealer in the UK, and just use the broker for the loan. Funds will be sent to the dealer after the finance agreement's signed. 

Important. Beware of 'representative' APR – you could get a MUCH higher rate. Only 51% of successful applicants have to get the advertised interest rate, so up to 49% could get a more expensive PCP deal than the one they applied for (if they're accepted at all). So you could apply for 6.5%, be accepted, and be given a 17.9% APR. Unfortunately the only way to know the rate you'll get is to apply, though always use the lender's eligibility calculator to see your acceptance odds first.

Top-pick online PCP finance providers and brokers

Provider Rep APR interest (1 to 4 years or stated)
Cheapest existing-customer deals. If you've had its current account for at least three months. Cars need to be under seven years old at the end of the agreement.
Bank of Scotland / Lloyds Bank  £3,000 to £60,000: 7.9%
Halifax £3,000 to £60,000: 7.9% 
Top 'open to all' deals. All providers here have eligibility calculators allowing you to check your acceptance odds before applying – typically for cars up to 10 years old at the end of the agreement.
Motiv* Scans five lenders to give you a personalised price. It may include some high APR lenders. 
Magnitude Finance* 8.9% (1 to 5 years)

Dealer finance

Sometimes known as forecourt finance, or just car finance, it's offered by almost every dealership in the UK – and PCP is one of the options they offer. Dealerships come in three main types: franchised (tied to one or more manufacturers, for example, BMW garages), independent (not tied), and car supermarkets. Sites such as Car Wow and Drive the deal are useful here, as they allow you to compare deals from dealers nationally. This means you may find a much cheaper offer from a dealer 200 miles away from you (for example, it has stock to clear), which you may otherwise have missed.
  • Getting a PCP deal through the manufacturer's finance arm

    In a franchised dealership, finance deals are usually arranged through the car finance arm of a manufacturer – so Ford Credit, for example, or Volvo Financial Services. It's definitely worth looking at what these dealerships can offer you on a finance deal, especially if you're buying a new car.

    If this is the case, it's not uncommon for the manufacturer to give £500 to £2,000 to you as a deposit contribution, and also offer 0% finance. If you don't qualify for 0% finance, you'll usually get an advertised APR offer from about 4%, though this is 'representative', so if you have a poorer credit history, you could be offered a much higher rate.

    It's worth saying that if you know you want to own the car at the end of the deal, PCP will give you low monthly payments, but, once you include the balloon payment you need to pay at the end, PCP is often more expensive than a personal car loan or Hire Purchase.
  • Getting PCP finance through an independent dealership or car supermarket

    Many independent dealerships and car supermarkets get their finance from big banks' consumer arms, allowing them to offer the same range of deals as the manufacturer-tied dealers. Black Horse (part of Lloyds) and Santander Consumer Finance, for example, supply finance deals to non-franchised dealerships.

    These finance providers aren't tied to manufacturers, and therefore often can't offer the heavily subsidised 0% finance or deposit contributions that the car companies' finance arms can. If you go to one of these dealerships, expect a representative APR of somewhere between 5% and 10% – or more if you've a bad credit record.

    It's a competitive market out there – check what's available online and from dealers, and ask yourself what you can really afford. It's vital you can afford the repayments before you commit. With all these types of finance, if your application is accepted, finance is sent directly to the dealer.

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What details and documents do I need to provide when applying for PCP finance?

Two driving licences and other associated documentation, with one reading "Driver and Vehicle Standards Agency".

While specific requirements vary between lenders, some of the details and documents you will likely need to provide when applying for PCP finance include:

  • Your personal information. This includes your full name, date of birth and contact details, such as your phone number and email address.
  • Your employment and income details. For instance, your employer's name and contact information and recent payslips or proof of income (such as bank statements and tax returns if you're self-employed).
  • Your address details. This typically includes information on the length of time at your current address and previous address details if you've moved recently.
  • Some financial information. For example, details of existing financial commitments (such as credit cards and mortgage), bank statements showing your income and outgoings, and details of any other assets or liabilities. Most lenders will also ask you to undergo a credit check. Learn more about this and how to check your score for free by reading MSE's guide to checking your credit report.
  • Your vehicle information. This includes the make, model and registration number of the car you are interested in, the purchase price (and any optional extras), and the details of any deposit you intend to make.
  • Your ID documents. You'll need to show proof of identity (such as a passport) and a proof of address (such as bills or a council tax statement). 
  • Your driving licence. A copy of your driving licence will be required. Check if yours is still valid using our Driving licence renewal guide.
  • Your bank details. These are needed to set up the Direct Debit for your monthly repayments.
  • Your insurance details. Some lenders may require proof of car insurance cover. Find out how to get cheap insurance by reading our full guide.

Always check with the specific finance provider for its exact requirements, as it may have additional criteria or ask for different documentation.

What to do if you're struggling with your PCP payments

If you find yourself struggling with your PCP repayments, you have some options:

  • Contact the lender early. Reach out to your finance provider as soon as you realise you might struggle making payments. The quicker you do so, the more options it'll have to help you and the sooner you can get back on track financially. Be upfront with your circumstances so the lender can understand your situation.
  • Explore your options with your provider. Some lenders may be willing to restructure a PCP agreement, whether by extending the loan term, adjusting monthly repayments or deferring instalments for a short period – otherwise known as a payment holiday. Bear in mind that these options may increase the overall cost of your loan and affect your credit score. That said, these are still preferable to defaulting on your deal.
  • Consider handing in your car. As touched upon earlier, you can hand the car back before the term is over. However, if you've paid less than 50% of the total cost of the car, it may be worth hanging on to it (if possible). This is because to terminate the deal you'd need to have paid at least half of the agreed instalments, so it would be possible to keep hold of the car until this time.
  • Part exchange the vehicle. Alternatively, see if you can part exchange your car for a more affordable model to reduce your monthly repayments. Bear in mind that you'll have to pay an early settlement figure and possibly further costs to clear the borrowing, so factor these in. If your car is worth less than this total, it may not be worth the trade.
  • Review your insurance cover. Check any insurance cover you have in place, especially if it includes payment protection or gap insurance, as these may help you in specific situations (such as if you write off a car). You can read more about gap insurance in our FAQ section.
  • Get free debt help. If your financial difficulties extend beyond your PCP contract, seek further support. You could create a budget, claim any benefits you're entitled to, and cut the cost of your debt – see how to do this and more, plus accessing free support with your finances, in our full Debt help guide.
  • Understand repossession procedures. A lender can only repossess your car without a court order if you've paid less than a third of the agreement. Still, it's a good idea to be aware of the terms and conditions outlined in your PCP agreement regarding repossession. Understanding the lender's policies can help you navigate the situation if it gets to this stage. 

Remember, communication is key. Keeping your lender informed and working together to find a solution is the best approach. Ignoring the issue can lead to more significant problems, so it's important to address financial challenges head-on.

Find more guides and tools to navigate debt in the Debt help section of our website. 

Also see: Balance transfer credit cards | Cut existing loan costs | Mental health & debt

Want to complain about your car finance provider?

If you think your car finance agreement was mis-sold to you, see our dedicated guide on how to reclaim car finance.

Alternatively, you can also complain if your car finance provider has taken the wrong amount in payment, treated you unfairly or its service has been atrocious. It's always worth trying to call the lender first to see if it can help, but if not...

You can use free complaints tool Resolver. The tool helps you manage your complaint, and if the company doesn't play ball, it also helps you escalate your complaint to the free Financial Ombudsman Service.

Personal Contract Purchase FAQs

  • Can I only use PCP to finance a new car?

    No. If you've found a car that's a couple of years old you can usually finance it with PCP. However, interest rates tend to be less competitive. This is because cars have largely lost a big chunk of their value, meaning there's little chance of the dealer getting much back on the car.

    Therefore, the interest is the only place dealers can make money from a PCP deal on a used car.

  • How can I make repayments as low as possible?

    Don't overstretch yourself, so go for a cheaper car if the repayments are too high. Alternatively, you can pay a bigger deposit and spread repayments out over a longer period.

    You're financing the depreciation of the car, so choosing one that holds its value well is another opportunity. Also, pay attention to the annual mileage you set – the lower this is, the lower the repayments will be (though don't set it low if you won't stick to it, as over-mileage charges can be hefty).

  • Why do dealers offer PCP deals?

    These deals are big business for dealers and represent a popular way for people to buy new cars. 

    The final balloon payment means that customers will probably buy another car on PCP rather than pay a big chunk of cash to own the car. So a customer could be visiting the same dealer for decades swapping one car for another, with the seller earning interest each time. 

    You don't have to visit the same dealer – but many buyers will, particularly if they always buy the same make of car.

    The dealer is also guaranteed to get the car back in a condition that makes it easy to sell on (or the dealer will charge big penalties), so it's a win-win for it. Plus the lower monthly payments mean that more of its customers can afford more of its cars.

  • I've heard about gap insurance, which will protect me in case I write the car off. Do I need it?

    When a car is written off or stolen, your insurer will pay out its value at the time. This means you're likely to get less from the insurance provider than you paid when you bought the vehicle, especially if it was brand new.

    Gap insurance is there to cover this 'gap', between the amount your insurer pays and the amount you'd need to buy that car (or another similar model) again.

    However, it certainly isn't essential. And, currently, the insurance regulator the Financial Conduct Authority (FCA) is investigating gap insurers due to concerns that their policies aren't providing fair value to some consumers. The FCA has also requested that insurers stop selling these policies by the end of March 2024.

    We have a guide to gap insurance, but have taken out the products in light of this, and will update the page once the FCA has finished investigating.

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