Say after 3 years the Guaranteed value is £10K, then after 3 years if the car is worth £8K you can just give it back. If its worth £12K then you can give it back and you've got £2K as a deposit (I'm not sure if they'll give you £2K cash back at that point though).
When making one of these arrangements you have to pay an arrangement fee (which you have to with most financial products), but there is no shortfall insurance. However, the interest rate is higher overall than a simple hire purchase scheme - so this is where they make the money. It makes your monthly payments smaller, but overall you pay more for the car.
Over 3 years on a car worth around £20K you could pay a couple of grand more over all using this type of financial product than a simple loan - however, it reduces the monthly outlay quite considerably. If you do go with a scheme like this, it's best not to do the maths on the other options!
