Buying a bike with cash

If you’re lucky enough to have cash in the bank, good old fashioned readies are still the most cost effective way to buy. Partly because interest rates for savers are far lower than for borrowers right now and any savings interest lost is less than the cost of repaying any loan. Plus, cash gives the best leverage for haggling with the broadest range of sellers (big dealers might make money on finance, gap insurance and the like, but small dealers and private sellers still prefer cash).

Pros:

• Biggest choice of bike and seller types
• Drives best bargains
• No finance approval
• Cheapest

Cons:

• Carrying large amounts of cash can be risky
• Dealers make money from selling finance packages so they’ll be keen to avoid cash

Buying a motorcycle on a Personal Contract Purchase (PCP)

PCP is a popular way of financing new bikes and is starting to be available for used machines, too – usually those under two or three years old. The system is similar to Hire Purchase (HP) and works on the premise of a guaranteed future value of any given machine – usually after three years. You pay a deposit (usually 10-20%) and then lower monthly instalments over a fixed period but defer a lump sum until the end of the contract. At that point you have the option of paying the lump sum to own the bike, handing the bike over to act as deposit on a ‘new’ bike or handing the bike back and walking away. The main disadvantages are that you don’t OWN the bike until the final lump sum is paid and, until that time, you’ll be contracted to maintain the bike at that dealer and stick to agreed mileage limits.

Pros

• You can ride a brand new bike for used bike money, so no hidden write-off or finance history to worry about
• Dealers sometimes add servicing packages or accessories into the deal
• Bikes with high resale values can have low monthly repayments because they will be worth more at the end of the term so, a Ducati or Harley (strong resale values) on PCP can be cheaper per month than some Japanese brands.
• Full manufacturer warranty

Cons

• You won’t own the bike at the end of it unless you pay the balloon payment
• Total cost including final payment is often higher than other forms of finance (because the PCP is usually based on RRP, meaning no haggling
• Mileage limits with penalties for exceeding
• Bike must be in good condition at the end of the finance or you’ll pay penalties
• Non-manufacturer modifications usually not allowed

Buying a motorbike with a personal loan

Personal loans are commonly available for between £1000 and £30,000 with most unsecured versions offered on a fixed interest rate. There are plenty of providers and, with a loan you own the bike from day one. If you default on payment, the bank will pursue you through the courts for their money, but not their bike. The main downside is that the advertised interest rates are for those with the best credit ratings – not everyone gets them.

Pros

• You are paying ‘cash’ so can haggle
• You own the bike straight away
• You can do as many miles or modifications as you like
• You can buy from a dealer or private sale

Cons

• You’ll need to finance the whole amount meaning a new bike will cost a lot more each month

Dealer finance

Can either be a personal loan or hire purchase (HP). Make sure you know which one you are getting because with a loan, you own the bike from day one, but on HP, you don’t. The obvious advantage is convenience: you’re doing everything in one go with the dealer, who can factor in your part-exchange and you only borrow what you need. The main downside is expense – the rate of interest offered by the dealer’s finance company is often higher than a bank. That said, some do offer 0% deals (although not usually on used bikes).

With hire purchase the buyer pays a deposit for the machine (usually around 10%) and then repays the balance, plus interest, over an agreed loan period although you don’t actually OWN the machine until the last payment has been made.

Pros

• It’s a simple agreement based on one payment meaning you might have more room to haggle
• You own the bike at the end of the agreement (unless it’s HP)
• There is more choice of finance providers
• Dealers may be able to ‘subsidise’ the interest rate from their profit or commission (from the finance company) to give a better deal

Cons

• Higher monthly payments

Buying a motorcycle using a credit card

For a disciplined buyer plastic can be a smart tool. The key is interest rates. Many credit card companies offer a decent interest-free period on new accounts and even longer on balances switched from other cards. So, if you buy a bike on your current card, apply for a new one with a long 0% rate on balance transfers, transfer the balance over to the new card and pay it off before the interest rate is applied, you can buy a bike that would never normally qualify for 0% finance without paying a penny in interest.

The only catch is that there is usually a fee for transferring a balance to your new card which might be a percentage of the balance or a fixed rate. If it’s a percentage, that could be almost as much as you’d pay in interest on a loan.

With the right credit limit, a low transfer fee and long 0% period, it might be worth considering. Bear in mind, that at the end of the interest-free period you’ll need to either clear the debt or switch to another supplier to avoid potentially high interest rates.

Your existing card may allow you to draw cash on it too meaning you can buy this way from a private seller. However, the interest rates are often higher on cash withdrawals and often apply straight away so you’ll need to transfer your balance quicker to avoid charges.

Pros:

• Fairly easily available
• Safer than carrying around cash
• Cheap if used wisely

Cons:

• May not be available to all
• Expensive if not paid off/switched at the end of the interest-free period