A courtesy car is a temporary replacement vehicle provided while an insured car is being repaired after a claim. It is usually a small standard model supplied by the approved repairer, not a like-for-like match for the original car.
In one line: A courtesy car is a temporary vehicle lent while the insured car is repaired after a claim.
How a courtesy car works
A courtesy car is typically offered when repairs are carried out through the insurer's approved garage network. Cover for it is written into the policy, and it usually lasts only for the duration of the repair work.
If a car is in the body shop for two weeks after a 2,000 GBP repair, a courtesy car keeps the driver mobile during that time, though the loan car is often a small hatchback rather than the same model as the damaged vehicle.
A courtesy car is generally not provided if the vehicle is stolen or written off, because there is no repair taking place.
Courtesy car vs hire car cover
A courtesy car is tied to a repair and is usually a basic model. A guaranteed hire car or like-for-like replacement, often an optional add-on, provides a comparable vehicle and can apply even when the car is written off or stolen.
Checking whether the policy promises a courtesy car or only offers one subject to availability avoids surprises at claim time.
Primary source: FCA: Insurance