If you are planning on buying a new bike on finance, it is important to find out much it will cost you, should you decide to keep it at the end of the term. This is called the “Residual Value” and this figure should be made clear to you before you sign on the dotted line.
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Why Is The Residual Value Important?
Well, apart from the obvious – knowing how much to expect to pay at the end of the term – it is also a big factor in how much the monthly payments will be.
Generally speaking, a higher residual value can help to keep the monthly payments lower. Here’s an example of how the residual value of your new bike effects the amount you pay per month:
Example 1
Bike A costs £10,000 from new. The residual value after the term of the finance agreement is agreed to be £5000. You lease it for 3 years, and during this time you use £5000 of the bikes value.
To calculate your monthly payments, you would divide the £5000 by 36 months, giving you a total monthly payment of around £138.00 per month.
Example 2
Bike B on the other hand, costs the same £10,000 from new, but the residual value is deemed to be £7,000. This means that although you still make payments over the same 36 month term, you are only using £3000 worth of the bikes value. Higher residuals generally lead to lower monthly repayments.
In this example you are only looking to pay the £3000, which divided by 36 months gives you a lower payment of around £83.00.
Please note, neither of these examples include VAT or interest.
Why Do Residual Values Differ So Much?
If you consider that the residual value of a bike is based on the trade price at the end of the term, you can appreciate that some makes and models will be a better investment than others.
In the motorbike world, certain types of bikes are considered to hold their value better than others. Premium brands often benefit from higher residual values, but are usually more expensive to purchase from new.
Harley-Davidson, BMW, Japanese bikes as well as some cruisers and sports bikes generally suffer less from high depreciation values when compared to Chinese or Korean motorcycles.
How Can I Make Residual Values Work For Me?
If you are savvy, and don’t mind changing your bike on a regular basis, you can hit a point in your finance agreement where you are in a position to trade in before you get too close to the residual value amount.
But, be warned, this is not an exact science and you can easily be caught out and stuck with a bike that will cost you dearly.
The best way to avoid poor residual values and high monthly payments is to buy the best bike you can afford, take good care of it, and keep it for the full term of the agreement.
Questions or Comments?
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