The vast majority of motorcyclists use some kind of borrowing to buy a new motorbike, and motorcycle manufacturers are keen to make finance as easy and flexible as possible.
In theory, a bank loan still offers the lowest interest rates, but in practice dealing with the banks isn’t always as easy as it could be. Arranging things with your dealer is convenient, and they even offer you a choice: Hire Purchase (HP) or Personal Contract Purchase (PCP).
But how do HP and PCP actually work, and which is best?
HP is straight-forward. You borrow the amount you need for your new bike, and pay a certain amount back each month. At the end of the loan period (anywhere from one to five years), the bike is yours. Done, dusted, do what you like with it.
Depending on the finance deal you get, you may not need a deposit – but it’s a good idea to pay something. The less you borrow, and the shorter the period, the more you save in the long run.
PCP is slightly more complicated, because there are additional decisions to make at the start and end of the finance period.
Like HP, you may or may not need to pay a deposit. You still make a monthly repayment. However, PHP payments are much lower – as little as half what you pay on HP.
In fact you’re not really buying the bike at this point, it’s more like renting. To recoup the remainder of the purchase price, a final payment is tacked on the end. It’s a substantial sum (between 30% and 50% of the original price).
The good news is, you don’t have to pay it. Too good to be true? Let’s look at the details.
Like HP there’s a repayment period, though there’s less flexibility. It’s usually either 25 or 37 months. Unlike HP you need to set a maximum annual mileage.
With those details, the finance firm will calculate a Guaranteed Future Value (GFV). It’s how much they think the bike will be worth at the end of the period. After your last monthly payment you have three choices:
There are a couple of important notes with PCP. You must take good care of the bike, and you must stay under the mileage limit. Break either of those rules and you’ll incur expensive penalties.
Some figures will help put HP and PCP into perspective. We used actual calculators from manufacturer websites to create these examples, but make and model is not important. This is just to compare numbers. In both cases we’re using a 36 or 37 month repayment period.
HP vs PCP
Monthly Repayment £140.00 (HP) vs £63.00 (PCP)
PCP looks really attractive, but if you want to keep the bike there’s a final payment of £3,060. In this case the mileage limit is 5,000 per year.
With HP, the total payable is £7,040.
With PCP the total payable £7,328.
HP vs PCP
Monthly Repayment £304.00 (HP) vs £164.00 (PCP)
If you wanted to keep the bike in this example, the final payment on PCP is £5,700. This time we opted for an annual limit of 8,000 miles.
On HP, your Total Amount Payable (TAP) is £13,944.
On PCP your Total Amount Payable (TAP) is £14,604.
In the first example, the manufacturer was offering 5.5% APR interest. In the second it was 7.9% APR. We’ve seen as high as 9.9% APR. It’s another thing to look out for. A few percentage points might not seem like much, but over three years it will cost you several hundred pounds.
PCP is often available on used bikes, but only those under five years old. Although dealerships are the usual source, when this was written at least one of the high street banks had a deal – so it’s worth shopping around.
With used motorbikes, setting the GFV is difficult. It’s absolutely vital to read the small print, and understand what you’re getting yourself into.
So how do you decide whether HP or PCP is best? The way you look at bike ownership will be a big factor.
The low monthly payments make PCP a great option if:
HP is probably best if:
The key to finding the best finance for your new bike is to look at the pros and cons of each deal, then decide not what you want today, but what you want a few years down the road.