Bike finance explained
Confused about buying a bike on finance? Let us explain what it really means for you
Is cheap finance a con?
No: we really are the winners. Manufacturers often offer really good rates of finance on certain models, especially in competitive sectors. It works because the manufacturer pays a subsidy to the finance company to make the deal happen.
What is PCP?
Personal Contract Purchase (PCP) schemes let you put down a deposit and ride off, paying finance based around how much the bike will be worth at the end of the agreement. The PCP deal specifies a Minimum Future Value (MFV) for the bike. The regular repayments reflect the depreciation of the bike, which keeps what you pay each month low, as the large balance of the finance is deferred – represented by the MFV.
At the end of the term you have three options. First, you can pay the MFV and keep the bike. The second and most common option is to trade the bike in for another new one — if it’s in good condition and within the agreed mileage limit, it should be worth more than the MFV so this would also give some money towards the deposit on your next bike. Or the third option is simply to give it back and walk away.
The benefit of PCP is that you’re paying less each month. The downside is that unless you make the final payment (often called a balloon payment), you don’t actually own the bike. A PCP is best for riders who like to change their bike every two or three years. Our advice is not to put down a huge deposit — you won’t necessarily get any benefit with PCP. Before you sign up, see what it’ll cost over two years rather than three — sometimes it can actually work out better, as the bike will be worth more when it’s two years old.
What about hire purchase?
Hire purchase (HP) is a traditional loan where you put down a deposit and pay off the balance over the agreed term — which will usually be between 12 months and five years. This is best for those who want to keep the bike for more than just two or three years, especially those prepared to put down a larger deposit. Payments are higher than PCP but at the end of the term the bike is yours though (like PCP) you can’t sell it unless you first settle the finance.
Can I pay by credit card?
This isn’t as crazy as it might sound. If you have a good credit rating, you can get a 0% credit card with a limit of several thousand pounds and up to two years before interest kicks in. It could be an interest-free way of buying a second-hand bike from a dealer. But settle it within the interest-free term or you’ll pay crazy money.
Dealers generally won’t mind larger amounts being paid on a credit card, though some may have a limit, like £5000. However, most will charge you the banking fee (1.7-2.0%) and nearly all will insist that you are on the premises when you pay for the bike, as they have more protection if you put your PIN in.
What about a bank loan?
A good bank loan will typically offer lower interest rates than standard new-bike finance. It also offers more flexibility than a bike-specific finance arrangement, as you can use it not only to buy your bike (either new or used) but also new riding kit, luggage or accessories, which may not go on an HP or PCP deal. You also own the bike from day one and therefore can sell it whenever you want — the loan is yours, not guaranteed on the bike. However, some bank loans can’t be paid off early without a penalty and some will be secured against your home.
Can I add options to a finance deal?
“The benefit of PCP is you’re paying less each month”
There are no fixed rules. A recognised accessory pack or luggage kit should be OK, as it adds to the value of the bike. But you probably can’t get new riding kit included in bike finance.
What’s finance protection insurance?
This is the dreaded PPI. When you take out finance, you should be offered insurance on the agreement in case you lose your job.
Can I swap bikes early?
If you want to change bikes before the end of your finance term, you will need a settlement figure from your finance company. This is how much you owe them, up to the time of the next payment. Pay this amount and the bike is yours. Or sell it back to a dealer: they’ll pay off the finance company and the difference between that figure and the value of the bike is yours.