People are wary of finance and for good reason – often it’s helping you buy something that you otherwise couldn’t afford to buy outright. But most of us are happy paying a bit more, for the privilege of being loaned the full amount to pay off over a time period that’s more convenient.
Finance has a bit of a murky reputation thanks to short-term loan companies with huge interest rates hitting the news (anyone remember Wonga?)
Butin the vast majority of cases, finance is a great way for people to manage their cash flow. Finance gets a bad reputation when people sign up to agreements from lenders who charge uncompetitive rates or when people don’t keep up their repayments – finance companies are notoriously pig-headed when it comes to chasing the money they are owed.
If you don’t overstretch yourself, finance is a great option. For example, for a £7,500 unsecured loan from a bank or a reputable provider like the AA Loans, over a 36-month period will see you paying off around £7,880, meaning the loan has cost you £380 over 3 years – that’s really not bad at all.
However loans secured on your motorcycle are not without their pitfalls. This is where the early upgrade offer can catch you out:
Finance agreements like Personal Contract Purchase (PCP) are often set up as contracts that run for 3 to 4 years (typically 35 to 48 months).
With a year to go on your PCP agreement, your dealer knows you’ll be looking at new models and thinking about what you’d like to swing your leg over next.
In the final third of your PCP agreement, you’ll likely get a call from the dealer you bought your bike from. This courtesy call, to check up on how you’re getting on with your bike, will mask their real objective: to get you on a newer motorcycle and more importantly, get you paying more each month.
The dealer’s sales-patter will be along these lines:
The dealer is unlikely to offer you a finance package that results in you paying a lower monthly fee.
Why? Because it’s in the dealer’s interests to have you paying more as they earn more – it’s that simple.
The dealer will pitch this new deal as an upgrade because they know you’re comfortable with the monthly PCP payments and know you’ll be receptive to a shiny new motorcycle for ‘just a few more quid a month’.
In many cases, if you bought the entry level bike or a newer model has come out, they know you’ll be keen to get a better or more refined, fresher model – you’re putty in their hands.
Let’s say you own a Bavarian adventure motorcycle, it’s a couple of years old and the manufacturer is about to bring out a new model – the dealer will have two issues: they want to clear out old stock and they want to sell more of the new models in advance so they can forecast their sales better and hit their internal targets.
The dealer might offer you a brand new version of the existing model, a couple of years newer than your existing model for ‘just a few more quid a month’ and in doing so, they get an old bike out of their showroom without having to heavily discount it. Or they might set you up for the new model and again, get you paying a bit more because, after all, it is new.
It’s unlikely the dealer will let you have free reign on a new bike – they’ll want you to stick to their offer as they no doubt have targets to meet against certain models and ranges.
In most cases, the catch is that you’re not actively looking to buy a new bike, so you’re not scouring for a deal like you did when you first bought your bike with a PCP offer. The dealer is hoping to get you into the showroom, make you feel special and tempt you with the addictive rush of getting your hands on a new toy.
The issue is, you’ll already have a finance agreement. The dealer will ‘help you work out a deal’ to transfer the agreement or extend it but often it involves you losing out.
You’ll lose money clearing negative equity, either through a lousy part-ex offer or settling the agreement early. You may also have to make another deposit towards the new bike as it will likely have a higher retail value. If the dealer ‘works out a deal’ so you avoid having to make a deposit, it’s likely your monthly finance payments will increase and your payment length will be reset, meaning you’re back into a 3 or 4 year agreement.
Dealers know that finance is a mental hurdle for most people but once you’re over the first hurdle – signing up to your first agreement – you’ll get over the others with ease, so an additional £20-30 a month ‘for a brand new motorcycle’ won’t register with most people – they’ll be too busy thinking about their new motorcycle and not the increased interest rate on the same value loan or the depreciation of their existing bike.
Early upgrades sound great and dealers will go out of their way to make you feel special but remember the dealer is interested in you paying more or selling you a motorcycle they don’t want, rather than one you need.
It’s worth remembering you’re in a much stronger position to negotiate when your agreement comes to an end. The dealer doesn’t want to lose you (afterall, they get commission from the company that finances your bike via a PCP option), so they’ll be more open to what you want and the price you want to pay, rather than what they want you to have and the price they want you to pay.
From a dealer’s perspective, a customer paying finance is better than no customer at all, so remember who’s in control.
Always do your sums, no matter how tempting the offer sounds. Compare any ‘early dealer upgrades’ with the initial agreement you signed up to. If you are interested in the dealer’s offer, get them to email it to you, so that you can compare it in the cold light of day with your existing arrangement. Don’t feel pressured or worse – flattered – to buy something you don’t need.