A deposit contribution is often mentioned when a manufacturer is offering a new motorcycle finance package. Is a deposit contribution the same as a discount? The short answer is no but the slightly longer answer is: it can be.
Let’s say a motorcycle has a £10,000 price tag. A dealer might offer a £2,000 deposit contribution, meaning that the bike is ‘just’ £8,000 but there is a catch. This deposit contribution, while it is a form of discount, will only be available if you take up the specific finance offer associated with that deal.
So if you’re cynical – like we are – you’ll be thinking, “Aha, so they’re discounting now and making money back from the finance offer.” If you’re thinking that, then you’re pretty much spot on.
In most cases, the dealer will be making a certain amount of money back from the deal, so as per our example, you’ll definitely pay more than the £8,000 finance-backed price and in some cases you’ll even pay more than the original £10,000 price tag. It all depends on the specific offer.
In a majority of cases, the deposit contribution is driven by the manufacturer, rather than the dealer themselves. The manufacturer will have countless reasons to dangle a deposit contribution:
Officially the answer is no, but there is a way around it. Many people hate the idea of finance and want to buy a new motorcycle with cash. Dealers aren’t as big a fan of cash purchases as you think they might be and you might find it strange that ‘discount for cash’ usually doesn’t get you far when it comes to buying a new motorcycle.
Any PCP or HP motorcycle finance is a loan, one which is regulated by consumer credit legislation. One of legal measures is that you can cancel your finance agreement within 14 days of it commencing. Cancelling this agreement won’t incur additional charges or affect your credit score, however the finance company will demand payment in full the moment you cancel your finance contract.
Let’s say you buy a £10,000 motorcycle via finance with the £2,000 deposit contribution. The finance agreement will be for £8,000, payable over structured monthly payments. The moment you cancel the finance, you’ll be invoiced by the finance company for £8,000 which you’ll have to settle.
The short answer is yes. However the risk is minimal if you were planning on paying cash in the first place as you will have the money ready and you’ll be able to settle the balance with no problems. You’ll have got yourself a £10,000 motorcycle for £8,000. Well done you.
You’ll need to be careful that you use the correct channels when it comes to cancelling your agreement. You should send a written letter, sent recorded delivery. Remember, cancelling the agreement doesn’t mean you can give your motorcycle or scooter back to the dealer, it just means you’ll break out from the finance agreement once you’ve settled your debt.
However taking this course of action will mean the dealer won’t earn any credit or commission from the finance company and so even though you’ve helped the dealer and manufacturer register another sale, you won’t be helping them hit their finance-backed sales target. You might not care but if you need to use that dealer again, don’t expect the red carpet treatment.
The contract may also stipulate that the deposit contribution is void if the finance is cancelled, in which case you may get a bill for £10,000 and therefore you won’t have got the bargain you thought you had.
Read the small print.
In most cases the deposit contribution is manufacturer-backed and not dealer or finance company backed, so the dealer won’t have a lot of leeway when it comes to cash purchases. Any discount they give you will probably come directly from their profit margin, which on a new motorcycle costing £10,000 could be as little as £500.
However dealers still have sales targets to hit, both for individual models and manufacturers. So if you have cash, they’re not going to turn down a sale if finance isn’t a route for you. They still need the numbers and may agree to an equivalent discount in the form of:
Somewhat strangely, cash doesn’t hold the bargaining power it did a decade ago but cash can still drive you a better deal. Remember the number-one rule: never pay list price.