What is a finance deposit contribution?

How does a deposit contribution work?

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.

So why do dealers offer a deposit contribution?

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:

• They want to make the bike’s price appear more attractive
• They want to hit the sales targets they’ve agreed with their finance partner
• They’ve ordered too many bikes and need to clear physical showroom space
• They’re worried about slow sales and want the new model to make an impact in the industry
• They want to take market share from a rival manufacturer

Can I get the deposit contribution if I pay with cash?

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.

The deposit contribution loophole

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.

Can I get my fingers burned?

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.

Some other options to consider if you’re a cash buyer

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:

• Ask the dealer if they will match the deposit contribution.

   

• Failing that, see what bikes they would offer you a similar discount on – there might just be one in the corner of their showroom that they know will be a pain to shift.

   

• The bike you want will have a range of manufacturer approved aftermarket accessories and lots of dealers are given these accessories or sold them at a hefty discount to fit to their demonstrator bikes. You might not be able to drive down the price but you could ride out of the showroom with the equivalent value of aftermarket accessories that you were going to purchase anyway

   

• Buy the demo. If the dealer has used their demonstrator for the season, they’re going to be selling it soon anyway. Yes, it’s a second-hand bike so it should be cheaper but you might be able to wangle a much better price, get the bike with a few choice accessories already fitted and no doubt have it fully serviced and stamped up for you to collect. The dealer might even agree to the next service too. You’ll be getting a near brand-new motorcycle, fully serviced, complete with warranty for a knock-down price.

   

• Finally if you do want a new bike, there’s always dealer goodwill. Some dealers have been known to offer a few choice accessories and the first couple of services free of charge, representing a decent saving on your future ownership costs.

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.