Car finance: what are monthly payments?

  • What do I need to know about monthly payments?
  • How do I make the most of the instalments?
  • Parkers explains car finance terms

Finance schemes typically split a car’s list price into a series of monthly payments, making them more affordable.

What do I need to know about monthly payments?

The most common forms of car finance – PCP, PCH and Hire Purchase – spread the cost of a car across a deposit or initial payment, monthly instalments and, in the case of PCPs, an optional final payment.

These finance schemes typically run between 12 and 60 months with drivers paying off some of the value of the car each month, rather than purchasing it with cash in one transaction.

This means that motorists can access cars that they wouldn’t otherwise be able to afford. The size of monthly payments is affected by the initial deposit and how much the car is worth at the end of the scheme, in the case of PCP and PCH.

How do I make the most of monthly payments?

Vehicles that retain their value well typically cost less each month – as there is a smaller difference between the car’s list price and how much it’s worth when you hand it back (excepting Hire Purchase plans where you automatically own the car at the end of the contract).

Putting down a large deposit or spreading repayments over a longer period are two easy ways to cut your monthly bills.

Other factors affecting monthly payments include APR charges and any deposit contribution offered. While high APR charges inflate monthly bills, large deposit contributions reduce how much you have to pay each month.

Similar to

Monthly instalments

Want to find out more about car finance? Take a look at our car finance section or head to the Parkers Car Glossary for more motoring meanings