Buying a new or used motorcycle is an exciting time, but it can cause a little confusion when it comes to finance. Here we take a look at the most common ways to purchase a motorcycle, Personal Contract Purchase, Hire Purchase and a personal loan. We also look at Personal Contract Hire, you will never own the bike with this option, but it may be more suitable for your needs…
Personal Contract Purchase
Personal Contract Purchase or PCP is a finance product offered by motorcycle dealers that provides a flexible funding solution to get you on your new motorcycle and out on the road with monthly payments that are lower than some alternative finance products.
How it works
PCP allows you to keep your monthly repayments lower by deferring a proportion of the credit to the end of the agreement, and also giving you the flexibility of 3 options at the end of the agreement.
So, how does this work?
- Firstly, choose the motorcycle you want.
- Agree how much deposit you would like to put down.
- Then, estimate how many miles you will ride each year
- Consider how long you would like your agreement to run, between 2 and 4 years.
- The dealer will then use this information to calculate a Guaranteed Future Value [GFV] – this is what they predict the value of your motorcycle to be worth at the end of the agreement.
- The Guaranteed Future Value is deferred until the end of your agreement.
- Your monthly payments are worked out on the difference between the GFV and the price of the motorcycle once your deposit has been taken off and interest added. This means you have lower, fixed monthly repayments.
You decide
When it comes to the end of your agreement, you will have 3 options to choose from:
- Retain – You can keep your motorcycle – pay the final payment (Guaranteed Future Value) and the option to purchase fee, and you will own the motorcycle outright.
or
- Return – You can hand your motorcycle back to the dealer without paying the final payment (Guaranteed Future Value). If you have exceeded your agreed mileage or the motorcycle is not in good condition, then there may be additional charges to pay. This will be detailed in your agreement.
or
- Renew – You can discuss with your dealer the option to part-exchange your motorcycle. This should cover off the cost of the final payment and then, together with your dealer, you can start looking at your next motorcycle.
Pros of Personal Contract Purchase
- The choice to get a new bike every couple of years.
- You pay a fixed amount, so you know your finances.
- You can get an agreement that includes maintenance costs.
- Wide selection of bikes to choose from.
- Dealers and manufacturers occasionally offer great deals on PCPs, including help towards deposits.
Cons of Personal Contract Purchase
- The deposits tend to be higher than other agreements.
- You’d have to pay a large lump sum at the end.
- Going over a pre-arranged mileage limit could be bad for your wallet.
- You’d be charged repairs if the bike is damaged.
- Sometimes, a dealer may offer a 0% APR deal to tempt you, but some are too good to be true, and the money will be found from elsewhere, i.e. a more significant balloon payment, or significant charges for excess mileage or minor damage.
Hire Purchase
Want to own your motorcycle outright at the end of your agreement? This is a finance product that lets you budget effectively because the interest rate and monthly payments remain fixed for the entire duration of the agreement.
So, how does this work?
- Choose the motorcycle you want.
- Agree how much deposit you would like to put down.
- The rest of the cost of the motorcycle, plus interest, is paid in equal monthly payments.
- You can then adjust the length of the agreement to suit you, usually anywhere between 1 and 5 years to fit the monthly payment you would like.
- Once you’ve paid all the monthly payments and the option to purchase fee, you own the motorcycle.
Pros of buying a bike using HP:
There are plenty of pros and cons to a Hire Purchase agreement, and it’s important to know what will be right for you. So, what are the advantages?
- You get the option to buy out the remainder of the contract any time you wish.
- The deposit size can be flexible.
- You get some protection if the bike runs into issues.
Cons of buying a bike using HP:
- The payments per month are usually higher due to the higher APRs.
- You will run into penalties if you leave the contract early.
- Missed payments can mean repossession of the motorbike.
- You cannot sell your bike before the final payment.
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 of a personal loan
- 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 of a personal loan
- You’ll need to finance the whole amount meaning a new bike will cost a lot more each month.
Personal Contract Hire
The advantage is that it’s more cost effective than both PCP and HP. Once the agreement ends, you can hand the bike back or sign up for another agreement.
What is Personal Contract Hire (PCH)?
Personal contract hire involves paying a deposit, often a few months worth of rental costs in advance, and a monthly charge over a set period of months or years to lease the bike. You won’t own the bike but you can return it once the lease period ends. You also don’t get any equity in the bike to use as a part-exchange against a future vehicle purchase, so it’s essentially a long-term bike hire.
However, servicing and maintenance costs can be included in the payments that you make. You might also be limited to how much you can use the bike with a mileage limit that is agreed upon in your contract. The upside to this is that a lower annual mileage limit could reduce the cost of the monthly payments, but going over could incur extra charges.
- Lower monthly costs.
- No depreciation worries.
- Access to brand-new bikes every few years.
- Predictable monthly payments.
- Can include servicing and maintenance.
Cons of PCH
- You’re stuck with the bike until the contract expires unless you pay an exit fee.
- The deposit can be fairly substantial.
- You won’t own the bike at the end of the lease.
- Mileage limitations can be hard to work around.
- Miss a monthly payment and the bike must be returned.
Posted on Thursday, June 22nd, 2023 in News
