Buying a Motorcycle on Finance Explained (UK)

This guide’s job is to help explain the different types of motorcycle finance options out there. If you’re in the market for a new adventure bike and considering PCP, HP or finance, have a read of this first…

Royal Enfield Himalayan 450

Contents

Buying a Motorcycle on Finance Explained

Disclaimer: We are not financial experts. Everything expressed here is simply our opinion and for informational purposes only. It is not intended as personal financial advice and should not be relied upon when making financial decisions. We will not be held liable for your decisions.

Motorcycle finance

Welcome to the world of motorcycle finance – a minefield of acronyms, sweet talk and head scratching. Even the savviest can leave a showroom dizzy on free coffee, a new PCP deal and no idea what they just signed.

Today, if you’re considering buying a new (or used) motorcycle on finance, you’re going to be looking at a simple Hire Purchase (HP) finance agreement, or the more complicated Personal Contract Purchase finance agreement (PCP). As there’s a lot more to cover with PCP, this article will mainly focus on explaining everything you need to know about it as well as bike finance in general. Let’s get to it.

Buying a motorcycle on PCP finance explained

Ready? Take a deep breath… Personal Contract Purchase (PCP) is a type of Hire Purchase finance agreement. Just like with a mortgage, you borrow money and agree to pay it back over time (although it’s secured against your bike, not your home. Phew!).

But what separates PCP from standard financing is that the payments are split into three:

  1. Deposit
  2. Monthly payments
  3. Optional final payment

The confusing bit (and key to PCP) is the optional final payment, also known as Guaranteed Future Value (GFV).

The GFV is what the finance company figure your bike to be worth at the end of your term (subject to you sticking to the rules of your PCP contract). You don’t pay interest on the GFV over your term, which means considerably lower monthly payments compared to regular financing. Still with us?

Here’s where it gets interesting. Once your contract is up, you’ll have three options:

  1. Buy the motorcycle
  2. Return the motorcycle
  3. Part-exchange onto a new PCP deal

For option one if you want to buy it, then pay the GFV and it’s all yours.

If you’re going for option two, then just give the bike back and you’re no longer tied to it financially and are free to walk away empty handed.

Or three, take out a new PCP deal, swap it for a new bike and ride away.

That’s why PCP is so attractive; a far wider range of bikes are now within easy reach for more people and for less money per month. The question is, is it right for you…

Motorcycle Finance

Commonly asked questions and risks with PCP

What if I lose my job and can’t pay?

You can settle early, but the GFV isn’t applicable until the end of your term. You may be in negative equity if you sell your bike for less than the GFV (likely if you want out before your term is up). You will have to pay the difference.

What happens if I want to change brands after my term?

Search for a dealer who stocks multiple brands and part-exchange with them instead of the branded dealer you bought from. You’re not obligated to a dealer.

Can I make modifications?

Yes. However, the finance company won’t reimburse you for them so keep the OE parts and change them back. Check that you’re allowed to use aftermarket parts too.

What if I crash the bike or it gets stolen?

You are still liable for your monthly instalments and as the bike won’t be returning in good condition (or not at all) then you’re also liable for the GFV. You’ll need to use the insurance pay-out to cover it and any shortfalls. You can purchase an additional policy called ‘Shortfall’ or ‘Gap’ insurance from a dealer or third party, which will pay the difference. Shortfall policies only cover in the event of total loss like a write off or theft. 

What do I need to watch out for?

The bike must be kept in good condition (subject to your finance company’s fair wear and tear policy), stick to your mileage allowance and adhere to full servicing at authorised garages. These are important because they ensure your bike meets the finance company’s predicted GFV. If you don’t follow the above then you will get stung, from an agreed pence-per-mile rate for going over your mileage limit to replacing damaged parts. You can always try contacting your finance provider to see if you can change the terms of the contract for higher mileage.

What about insurance?

It’s important to let your insurance provider know the bike is on PCP. Some companies can be funny about it, but most should be fine. And you must have fully comprehensive insurance with a PCP contract.

Buying a motorcycle on PCP if you have the cash

PCP can sometimes work out as a better deal even if you have the cash to buy a bike outright. Dealers and manufacturers offer PCP incentives like deposit contributions and 0% APR. Restrictions like mileage limits wouldn’t matter because you’re going to buy the bike anyway.

How to get the best motorcycle PCP finance deal

Dealer deals

Dealers like PCP because they’re more likely to get a return customer and a well looked after second-hand part exchange. That means there are always deals to be had so don’t be afraid to ask for a lower APR. A manufacturer’s APR is always set high and can be dropped by 5% for example by a dealer.

Become a PCP Watcher

Dealers and manufacturers often offer 0% APR if they want to shift a certain number of bikes, meet a yearly quota or have a new model coming in and need to clear the decks. Keep an eye on the market, what new models are coming out and what’s on offer.

Be smart with the numbers

Figure out the difference between the cash price and GFV as that’s how much you’re spending. A higher deposit and less contract time means less interest overall. Tweak the deposit and term time to get the best deal. Also, remember the GFV stays roughly the same unless you start upping the mileage and increasing borrowing time.  

Final thoughts on PCP

PCP can be a fantastic way to get your hands on the bike of your dreams when used by the people it’s designed for.

If you don’t want to commit to purchasing a new bike because you want a new model every couple of years, like the sound of low monthly payments and aren’t riding to Siberia on your two weeks off work, then PCP is perfect for you.

It does come with caveats and isn’t for everyone. But, if you understand that and it fits with what you want, then it’s certainly the smartest way of financing a new motorcycle.

It’s for you if…

  • You want brand-new and the latest model… and another new one in a couple of years
  • You don’t mind not owning the vehicle at the end of your term
  • The asking price for the bike you want is otherwise out of reach

It’s not for you if…

  • You want to keep the bike at the end of the term (HP may be the cheaper option)
  • You don’t like the idea of not owning the vehicle
  • You don’t want to be restricted by mileage and servicing requirements

Buying a motorcycle on Hire Purchase finance explained

Hire Purchase (HP) is financing’s bread and butter. Put a deposit down, pay the remaining balance in equal monthly instalments and once it has been fully paid off, the motorcycle is yours. Easy.

In comparison, PCP has far lower monthly payments and the option to not purchase after three years. That flexible option allows you to move onto another bike without having to fork out the full balance on the original and deal with selling it. This can make HP the better option if you want to keep the bike at the end and can afford the higher monthly payments.

With HP, bear in mind that the interest rate from the motorcycle dealer may be higher than a bank’s interest rate if you wanted to go down the personal loan route. However, you may be able to find a 0% finance deal and if not, you still might be able to haggle with a HP deal.

There is no walking away or swapping halfway through a HP and remember that the bike is not yours until the final payment has been made.

Motorcycle finance terms explained

HP: Hire Purchase. A system of paying for something in instalments while having use of it. 

PCP: Personal Contract Purchase. A type of Hire Purchase

GFV: Guaranteed Future Value. What a finance company calculates a vehicle to be worth at the end of a term.

Balloon payment: Another term for GFV and the amount you must pay at the end of a term. If you’re planning on purchasing then make sure you’re prepared when the balloon payment comes around.

Equity: If your bike is worth more than the GFV at the end of your term then that amount is called equity

Negative equity: If it’s worth less then it’s negative equity

OTR: On the Road price. Everything you need to pay to get the bike on the road

APR: Annual Percentage Rate. The amount charged for borrowing per year

Financing for motorcycle travellers and round the world riders

To the best of our knowledge, there is no motorcycle insurance company that will cover your bike to ride around the world. If you’re from the UK and have a UK bike with UK insurance, your insurer won’t cover you outside of Europe. And even then, there may be restrictions like being able to ride in Europe for only 30 days etc.

Some may say, yes but you buy new insurance at the borders of other countries. True! But nine times out of ten these are third party only and often aren’t worth the paper they’re written on. 

Point being, it would not be a smart move to buy a motorcycle on finance and then leave the country with it before the bike is paid off as you may not be insured. Without insurance, if your bike is stolen you will still be liable for the payments.  

READ MORE: Round the World Motorcycle Guides

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Thanks for checking out the Motorcycle Finance Explained Guide. We hope you enjoyed it! Here’s a few more articles on motorcycle paperwork that we recommend you read next. 

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Are you planning on purchasing a new adventure motorcycle? Do you have any questions, tips or suggestions? Let us know in the comments below. 

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