PCP and finance guide

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Motorcycle finance is a complicated area. Cash, PCP, Bank loans, PCH, Hire purchase, long term lease, there are so many options, but which is better? Should I buy on PCP?

People think that there is quite the stigma over bike finance, but talking money is always a taboo subject. We have heard it many times that having a bike on finance is bad. As ever with the motorcycle chatter banded around cafe car parks, that statement is not necessarily true. So we have looked at the new motorcycle finance options.

Option one – Cash

Considered quite the old school method for purchasing items these days compared to other methods. But the old adage says cash is king, and well it is IF you have it. By buying outright with cash and the bike being yours, there are no monthly interest charges or added fees. The price you see is the price you will pay, at the most. There are a few downsides to paying cash, firstly with the ever-advancing prices of bikes, saving up the very large chunk of money upfront can take time. By the time you have saved up the technology could have moved on.

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We understand that motorcycles are a personal item, and people often hold onto bikes for much longer than a car due to the attachment. With a cash purchase, you are also free to modify the bike as you please, whereas finance can have some stipulations.

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Ninja 650 KRT Edition

Bad sides to cash?

Any depreciation on the bike is beared by you, the owner, not by somebody else. Buying a bike with cash outright can also tie up funds, which can be useful elsewhere depending on circumstances. On the plus side, sometimes a better deal can be had with a cash deal, as a dealer wants the money there and then. There are no middlemen to go through and no fees from finance companies to deal with.

Option 2 – Monthly payback personal loan

While it is a form of finance, as you will still be paying back monthly, getting a bank loan can see a smaller interest rate which in turn lowers the overall cost. A longer payback duration can also see the monthly payments drop-down, however, of course, the duration is longer. This is possibly a good option if you keep your bikes for a longer period, but as you are not tied into a deal on an actual item like a bike. You have just had the cash to buy the bike. You can sell and swap bikes as you wish with no limitations.

BMW XR range

Option 3- What is PCP?

This works in a similar way to a loan, except it’s specifically used when buying a vehicle. This is a good way to get the new bike in the garage, at a low monthly cost. It normally starts with a deposit (normally around 10%), a monthly fee and then a balloon payment at the end of the contract. There are a number of factors which go into the monthly fee, such as the duration of the deal, the size of the deposit, the value of the bike, and the estimated number of miles annually covered.

Motorcycle finance; PCP in numbers

I looked at the numbers on a brand new Suzuki V-Strom 1050 XT, it’s RRP is £11,299. A 25 month deal, with a £3k deposit, and 6k annual miles, gives the below.

24 monthly payments of £164.27 with an optional final payment (often called the balloon payment) Of £6458.

Changing the deal to 3 years brings it down to £139 per month, a final payment of £6165.

Lowering the annual milage to 4k a year lowers it two £129 per month. Conversely adding milage to this will increase the monthly payment.

DL1050 Vstrom
2020 DL1050 Vstrom

How does PCP work?

Quite simply PCP is a long term lease, with an option to buy at the end of the term. The person offering the finance will guesstimate the value of the vehicle at the end of the term. That value is subtracted from the selling price and is what is broken down into the monthly payment. Adding more miles (reducing the value of the vehicle at the end of the term) will increase the monthly.

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The dealer will give a GFV (Guaranteed future value) the figure they estimate the vehicle to be worth at the end of the term. This figure will normally be a fair market price for the vehicle. These figures are normally very close to actual market value. For instances of a newly released vehicle, the seller will take this into account. Future desirability and availability will change the GFV figure. This GFV only comes into play should you decide to keep the bike.

What happens at the end of PCP?

Quite simply, there are three options. Hand the bike back to the dealer/finance company. Nothing more, nothing less no extra fees unless you have exceeded the agreed mileage or there is damage. You are then free to enter a new deal elsewhere. This is particularly handy if the value of the bike has fallen more than expected at the start of the deal, hand the bike back, and let the finance company take the hit.
Typically 7-10 pence can be charged for every mile over the agreed mileage, so this is something to watch out for.

Hypermotard 950
Tyres are not included!

Alternatively, you can pay the final balloon payment off and the vehicle ownership will transfer to you. This is a good option if you particularly like the bike and don’t plan to upgrade for a while.

Lastly, you can use any remaining equity in the bike as the deposit towards your next bike. This is useful if the bike is worth more than the GFV. Unfortunately, you won’t be able to take any extra equity out as a cash payment unless you buy and sell privately yourself. This takes time and effort.

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Providing your finances are secure, PCP could be a good option to get the new bike in the garage, at a good monthly price. Getting a motorcycle finance through PCP will give you time and save you effort.

Option 4 – What is PCH?

This works in a similar way to PCP, except there is no option to buy at the end of the term, essentially it is a long term hire deal at a decent rate.  Simply put you pay £x per month, every month for the duration and then at the end you simply give the bike back.

PCH Example

Let’s look at BMW’s new S1000RR. For the base model, with no optional upgrades, its RRP is £15,585. A PCH deal over 36 months and with 5000 miles per year works out at £189 a month and £3079 deposit.
Dropping the deposit to £1443 pushes the monthly rental up to £244.

S1000RR PCP
BMW S1000RR

Again, as with PCP increasing the annual mileage will increase the monthly price, however with the previous monthly price of £244, doubling the mileage from 5000 to 10,000 increases the monthly by £30.

Again PCH is a good deal for the biker who wants a lovely shiny new bike but with little interest in actually owning it, but just riding it. PCH also gives no worries about the depreciation of the bike.

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So which option is right?

Whilst we are no finance experts, all we know is that it varies from person to person. What we will say is to not get bamboozled by low monthly payments, because costs can be made up elsewhere. Focus on looking at the overall price of the deal.

What we do know is that having motorcycle finance, can give some advantages and really shouldn’t have the stigma it does. In some cases, having the bike on finance is actually the smart choice, and with most bikes cheaper than the daily drink and butty off the work tuck truck, there is plenty of bikes to choose from.

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