What is motor finance?
‘Motor finance’ refers to loan and credit products that can help to spread the cost of buying a vehicle, to make purchases more manageable.
Motor finance is often offered by motor traders/garages/dealerships during the process of selling you a vehicle. In these circumstances, the motor trader acts as a broker (or “intermediary”) between you and the lender.
What types of motor finance agreement are available to consumers in the Bailiwick of Guernsey?
In the Bailiwick, the most common types of motor finance available are:
Personal Loan – a type of unsecured agreement, meaning the lender would not have any claim over the vehicle. These loans are usually arranged directly with a lender or through a third-party finance broker, rather than via the motor trader.
Hire Purchase (“HP”) – a secured loan agreement, where the customer technically hires the vehicle from a lender until the loan is fully repaid. At the end of the agreement, the customer can take ownership by paying a small ‘option to purchase’ fee.
Personal Contract Purchase (“PCP”) – similar to an HP agreement, however a guaranteed minimum future value (GMFV) is set for the vehicle, which is an estimate of what the vehicle will be worth at the end of the loan agreement. At the end of the loan term, there is the option to:
- Keep the vehicle by paying a one-off ‘balloon payment’ equal to the GMFV
- Part-exchange the vehicle for another
- Hand the vehicle back to the lender with no further payments
A significant portion of a PCP loan is not payable until the end of the agreement (the balloon payment), and so a customer’s monthly repayments are usually lower than for an HP agreement. However, this means that if a customer does not wish to part-exchange or hand back their vehicle, then they will need to find a different way to pay off the balloon payment owed. Sometimes, customers take out a further loan agreement to help pay this off.
HP with balloon – similar to a PCP agreement although the final balloon payment (or ‘residual instalment’) is not a GMFV, and so the final trade-in value of the vehicle is not guaranteed.
The UK’s Finance & Leasing Association has produced easy-to-understand factsheets under its SAF Essentials framework, to help to illustrate how different motor finance products work. Although, please note that this information is aimed at firms based in the UK, and is not Guernsey-specific.
How is motor finance regulated?
Within the Bailiwick firms that provide or arrange motor finance are regulated under the Lending, Credit and Finance Law, one of the main aims of which is to protect individuals when taking out loans and credit agreements. This includes rules to ensure that customers are treated fairly, and are given access to clear, transparent information.
Does the Commission license the entire Guernsey motor finance market?
No – some firms are allowed to operate within the Guernsey motor finance market without holding a licence. This includes:
- Appointed motor traders (“AMTs”) - these are motor traders who offer and promote motor finance agreements provided by a single licensed lender, who is required to take on responsibility for an AMT’s conduct and compliance with the Rules.
- Equivalent firms – these are firms which are not based in the Bailiwick but can provide and arrange motor finance loans in the Bailiwick, if they are authorised by the Financial Conduct Authority to provide those services in the United Kingdom.
- Financing for commercial vehicles - lenders and brokers who only offer loans for the purchase of commercial vehicles (e.g., taxis, farming equipment or vans/trucks used by tradespeople) can operate in the Bailiwick without a consumer credit licence.
- Firms undertaking basic referrals - if a motor trader simply provides contact details for a licensed lender or broker, with no further involvement in the arrangement (even if the motor trader receives a commission for the referral).
What should I know about the motor finance agreement before I enter into a contract?
Below are some of the key questions you may wish to consider before entering into a motor finance agreement:
Which is the best type of finance agreement for me?
Choosing the right product for you depends on your financial circumstances, how long you plan to keep the vehicle, and your preference for ownership or flexibility. Licensed firms are not allowed to recommend products to you that would be unsuitable. Carefully consider what types of motor finance agreement you would be comfortable with (if any) and that would suit your circumstances.
How much can I put down as a deposit?
A larger deposit can reduce the loan amount, which means lower monthly payments and less interest paid overall. We recommend you speak to your lender or motor trader/broker about what is possible, and what you can afford.
Are there any other fees or charges?
Check for any administration fees, document fees, set-up costs, option-to-purchase fees, exit fees or extra costs, as well as how and when these are paid. All fees and charges must be notified to you, in writing, before you enter into an agreement. If you are unsure which fees are being charged or how and when they need to be paid, then ask your lender or motor trader/broker.
How long is the loan term?
Most motor finance agreements will last somewhere between 1 and 6 years. Longer terms may mean a lower monthly payment, but you will likely have to pay more interest overall, over time. Think about whether you can manage a shorter-term loan with higher monthly payments, because this should cost you less in the long run.
Your lender or motor trader/broker should be able to adjust the loan term to help you find what works best for you.
What will this loan cost me overall?
The cost of the loan can be compared in two simple ways, the Annual Percentage Rate (APR) and the total cost of credit.
APR represents the total yearly cost of borrowing money, expressed as a percentage. It includes both the interest rate and any additional fees or charges. Lenders must all use the same calculation to work out the APR of a loan, so that customers can make a direct comparison between the costs of borrowing on different loans. The lower the APR, the cheaper the loan is per year. Licensed firms are required to provide you with the APR, in writing, before you enter into an agreement.
The total cost of credit is how much more it would cost you overall, expressed in Pounds, to borrow from a lender, compared to paying for a vehicle upfront and in full. The total cost of credit will vary depending on the APR and the terms of different loans. Licensed firms must provide you with the total cost of credit, in writing, before you enter into an agreement.
If you are looking for the cheapest financing available to you, then you may wish to compare the APR and the total cost of credit of different loans before going ahead with an application. For loans of the same amount with the same term, the same APR will lead to the same total cost of credit, but this is not the case if the term differs.
While you may wish to compare monthly payments across agreements, this may not reflect which agreement is cheaper in practice.
Does this loan include a balloon payment?
“Balloon payments” are large, one-off loan repayments that you make at the end of a PCP agreement and some types of HP agreement. While they can lower your monthly payments without increasing the duration of the loan or the size of your deposit, you will need to have the money ready to pay the balloon at the end of the contract, if you want to keep the vehicle. If you don’t have this money available when it becomes payable, then you may need to take out another finance arrangement (e.g., a personal loan) to pay off the balloon, or you may be required to hand the vehicle back. Licensed firms are required to clearly set out terms (including balloon payments), in writing, before you enter into an agreement.
If you are unsure whether the loan involves a balloon payment, or if you have any questions about how it works or when it becomes payable, we recommend you speak to your lender or motor trader/broker.
Will my motor trader receive any commission if they arrange motor finance for me?
Lenders usually pay fees (known as “commissions”) to brokers, as a way of compensating them for introducing customers or helping with the loan application process. Licensed firms must disclose to you whether any commissions will be paid or received for arranging your finance agreement. This disclosure encourages a transparent finance sales process.
What happens if I change my mind about the loan once I have signed the agreement?
You are entitled to a two-week “cooling-off period” from the date of signing a motor finance agreement, during which time you can choose to cancel the loan.
Be aware that cancelling the loan does not cancel the vehicle purchase, and that the cooling-off period does not entitle you to return the vehicle. It simply means that you can choose a different way to pay for the vehicle. This can be useful if you have found a better borrowing option elsewhere, or if you decide that you would rather pay the full value upfront. Licensees are required to provide you with details of the cooling-off period, in writing, before you enter into an agreement.
What would happen if I wanted to pay off the loan early?
Lenders must allow you to make full early payment of your loan. Be aware that if you settle early, then you may have to pay some extra fees. There are limits to the amount of early repayment fees that licensed firms can charge. They cannot charge early‑repayment fees of more than two months of interest, or one month of interest if you have less than a year left on the loan. Firms must provide you with the arrangements, fees and charges applicable for early repayment, in writing, before you enter into an agreement.
Remember:
- Take your time and ask questions.
Licensed firms must provide you with key information to enable you to make a balanced and informed decision before you enter into a contract. You can take paperwork away to read and consider in your own time, if you would prefer to do so. If there is anything that you do not understand about the financing options available, or the terms and conditions of an agreement, we recommend you speak to the lender or motor trader/broker.
- Do not enter into a motor finance agreement if you are feeling pressured, or if it does not feel right for you.
Licensed firms must not pressure you to enter into an agreement. It is important that you make a decision that is right for you and for your personal circumstances. Licensed firms are required to treat customers fairly and must observe high standards of integrity.
- You are entitled to shop around.
It can be quicker and easier for your motor trader to arrange a motor finance agreement on your behalf, but note that they do not usually offer all of the motor finance products that are available on the market. You may be able to find cheaper financing elsewhere. If you would prefer to arrange a motor finance agreement yourself, or via a third-party finance broker, you are free to do so. Your motor trader must not stop you from shopping around.
- If your financial situation changes and you may not be able to make loan repayments, keep your lender informed.
Motor finance loans last for several years, so it is normal for your income or expenses to change during that time. Let your lender know about any major changes in your personal or financial situation if that could affect your ability to make future payments, such as bereavement, a change in employment, or other important life events. If you start to struggle to keep up with your repayments, we recommend you contact your lender as soon as possible.
Licensed lenders are required to offer support (or “forbearance”) to customers who are experiencing difficulty making repayments. Keeping your lender informed early helps them to understand your situation and consider appropriate support to help you, before the problem becomes more serious.
- If you are not satisfied with the financial services you have received, you are entitled to raise a complaint with the lender or motor trader/broker.
Licensed firms are required to follow certain rules when handling complaints about financial services they have provided to customers. For example, they must:
- Where appropriate, provide you with an explanation of their complaints handling process;
- Settle the matter swiftly;
- Keep you informed about the progress of the complaint; and
- Advise you when the complaint is considered closed.
If, after raising a complaint, you remain dissatisfied with the outcome of that process, or if more than three months has elapsed since you brought your complaint to the licensee, you may wish to consider escalating the matter to the Channel Islands Financial Ombudsman (“CIFO”).
More information about raising complaints can be found within the Commission’s web page, “How to Make a Complaint”.
Further information
We have produced an easy-to-follow, printable list of our key tips and considerations, which are designed to be brought along with you when purchasing a vehicle on finance. This can be found on the Commission's Useful Documents and Links page.
During 2025, we undertook a thematic review of Motor Finance within the Bailiwick, the results of which can be found on the Commission's Legislation & Guidance page.