Motorcycle finance explained

How does finance work when buying a motorcycle? Funding a bike purchase used to be simple. Cash, HP or a bank loan. In recent years a few more options have appeared, and a lot more choice of finance providers too. Thankfully, it’s still relatively simple and to make it even easier here’s the BikeSocial guide to finance.

Why buy a bike with cash?

If you’re lucky enough to have cash in the bank, good old-fashioned readies are still the most cost-effective way to buy. Partly because interest rates for savers are far lower than for borrowers right now and any savings interest lost is less than the cost of repaying any loan. Plus, cash gives the best leverage for haggling with the broadest range of sellers (big dealers might make money on finance, gap insurance and the like, but small dealers and private sellers still prefer cash). 

What are the basics of motorcycle finance?

If you haven’t got the ready cash available to buy a bike you’ll need to get finance and basically there are four different types: Credit – i.e. using the credit facility on an existing or new credit card; getting a bank loan, or setting up a Hire Purchase (HP) or Personal Contract Purchase (PCP) plan with the selling dealer.

Credit can be the simplest and cheap if you already have a card and enough funds available within your agreed credit limit. You can also usually pay it back at a rate and speed that suits you. On the downside it’ll usually be subject to an interest rate that is higher than a bank loan interest rate so could cost you more.

A bank (or other finance provider) loan should be subject to cheaper interest payments than a credit card and these days is also usually quite easy to arrange online, often with fund available almost immediately. However, any new arrangement will be subject to having a good credit score and you will be tied in to regular monthly payments over a fixed term.

In addition, dealers usually offer their own finance schemes. These are, first, Hire Purchase (HP) which is effectively a loan directly with the dealer finance company. While secondly, and as has become increasingly popular in recent years, there are PCP schemes, which are seemingly similar but have the huge attraction of comparatively cheap monthly payments as they work on the principle of you not owning the bike until the final ‘balloon’ payment is made at the end of the credit period.

Buying a motorcycle on a credit card

For a disciplined buyer plastic can be a smart tool. The key is interest rates. Many credit card companies offer a decent interest-free period on new accounts and even longer on balances switched from other cards. So, if you buy a bike on your current card, apply for a new one with a long 0% rate on balance transfers, transfer the balance over to the new card and pay it off before the interest rate is applied, you can buy a bike that would never normally qualify for 0% finance without paying a penny in interest!

The only catch is that there is usually a fee for transferring a balance to your new card which might be a percentage of the balance or a fixed rate. If it’s a percentage, that could be almost as much as you’d pay in interest on a loan.

With the right credit limit, a low transfer fee and long 0% period, it might be worth considering. Bear in mind, that at the end of the interest-free period you’ll need to either clear the debt or switch to another supplier to avoid potentially high interest rates.

Your existing card may allow you to draw cash on it too meaning you can buy this way from a private seller. However, the interest rates are often higher on cash withdrawals and often apply straight away so you’ll need to transfer your balance quicker to avoid charges. 

Buying a motorbike with a personal (bank) loan

Personal loans are commonly available for between £1000 and £30,000 with most unsecured versions offered on a fixed interest rate. There are plenty of providers and, with a loan you own the bike from day one. If you default on payment, the bank will pursue you through the courts for their money, but not their bike. The main downside is that the advertised interest rates are for those with the best credit ratings – not everyone gets them.

Using dealer finance, loan and Hire Purchase (HP)

This can either be a personal loan or hire purchase (HP). Make sure you know which one you are getting because with a loan, you own the bike from day one, but on HP, you don’t. The obvious advantage is convenience: you’re doing everything in one go with the dealer, who can factor in your part-exchange and you only borrow what you need. The main downside is expense – the rate of interest offered by the dealer’s finance company is often higher than a bank. That said, some do offer 0% deals (although not usually on used bikes). 

With hire purchase the buyer pays a deposit for the machine (usually around 10%) and then repays the balance, plus interest, over an agreed loan period although you don’t actually OWN the machine until the last payment has been made.

Buying a motorcycle on a Personal Contract Purchase (PCP)

PCP is now a very popular way of financing new bikes and is starting to be available for used machines, too – usually those under two or three years old. The system is similar to Hire Purchase (HP) and works on the premise of a guaranteed future value of any given machine – usually after three years. You pay a deposit (usually 10-20%) and then lower monthly instalments over a fixed period compared to HP but defer a lump sum until the end of the contract. At that point you have the option of paying the lump sum to own the bike, handing the bike over to act as deposit on a ‘new’ bike or handing the bike back and walking away. The main disadvantages are that you don’t OWN the bike until the final lump sum is paid and, until that time, you’ll be contracted to maintain the bike at that dealer and stick to agreed mileage limits.

Are motorcycles available on Personal Contract Hire (PCH)?

Although, strictly speaking, we’re dealing with ways to purchase a bike here, there is one other way of having a bike for an extended period of time with affordable monthly payments.

Personal Contract Hire (PCH) is most common the car leasing world but is increasingly available for bikes, too, either through a dealer or lease company. Effectively it’s longer-term motorcycle rental. You pay a deposit then a monthly hire charge over a set period of months or years to lease the bike. You won’t own the bike, per se, and you also don’t amass any equity in the bike which you might otherwise use as a part-exchange or down payment against a future bike, but it can be a viable way to ‘own’ a bike for a period, before switching to a different one.

On the slight downside, servicing and maintenance costs may be included in your monthly payments and you’ll also likely have an annual mileage limit which, if you exceed, can incur further costs, but these are agreed up front.

Some real world examples

Bank loan, Hire purchase or PCP? How you buy your bike depends on what you need.

At the time of writing Triumph’s Speed 400 had two manufacturer-backed finance offers on it – for HP and PCP which we explore here.

We’re also giving you the example of CF Moto’s similarly priced 450NK for comparison purposes and to give you an idea of how rates between manufacturer finance offers vary.

For the Speed 400, who’s current on the road price is £4995, a typical example using Triumph’s PCP payment plan would be a £999 deposit leading to monthly payments of £67.84 for three years (36 months) with a final option to buy, or ‘balloon’, payment of £2512. Of course, at that point you don’t have to buy the bike outright, you can hand it back or switch to a new bike and new PCP deal. The Annual Percentage Rate (APR) of interest charged over the period in this case is 9.9%. If you do pay the balloon payment there is an additional £10 purchase fee making the total amount paid £5953.24. In other words, you’ll have paid £958.24 for the finance.

If you went for Triumph’s traditional Hire Purchase option, you’d pay the same £999 deposit at the same 9.9% APR over the same three-year period, but you finance the whole deal and own the bike at the end. So, there are higher monthly payments as a result but no final balloon payment. In this case you’ll pay £124.77 per month. That monthly payment may be nearly twice as much as under the PCP deal but it’s worth noting that the total amount paid is less, at £5624.38, so you are actually paying £328.86 less overall.

The APR rates are critical as they determine how much you pay in total. They also vary from time to time as manufacturer’s introduced special low interest rates on specific models to help market their bikes.

As an example of this, for comparison’s sake, we’re also including a bike similar to the Speed 400 below.

Chinese brand CF Moto is making big inroads into the UK. It’s 450NK model is in the same market sector as the Triumph Speed 400 and currently has a virtually identical RRP of £4999.

However, CF Moto’s current promoted PCP deal for the bike has an APR of just 4.9% (its usual rate is 9.9% like the Triumph). The result of that, with a smaller deposit of £723, is 36 monthly payments of just £79, a similarly smaller optional final payment of just £1891.25 and thus a total amount payable of £5458.25, meaning the overall cost of the finance is also less at £459.25.

Will I be insured on a PCP?

Yes, with most insurers. Some people question whether bikes on a PCP are insured because, you don’t ‘own’ the machine until the final balloon payment is paid. There has been some concern that putting yourself down as the owner when you have the bike under PCP would be inaccurate and could lead to a claim being turned down. We are not aware of this being an issue but decided to check with BikeSocial’s parent company, Bennetts Insurance.

Bennetts’ MD Vince Chaney explains. “At least as far as Bennetts and our underwriters are concerned, you should list yourself as the owner of a bike that is fully purchased, on hire purchase or on PCP as they are all treated the same. Any claim would not be turned down for this distinction.

"If you have a bike on a PCP, you have the ‘insurable interest’ on that machine. That means that you hold a material financial stake in the bike being insured against an unforeseen event, regardless of who ‘owns’ the vehicle.

“We appreciate that this isn't always clear to customers, so we've added some more wording to our website to reassure riders of PCP or HP bikes. You can also find our full Terms and conditions at www.bennetts.co.uk”

“In event of a claim, if your bike is on PCP or Hire Purchase, we may settle your finance arrangement directly from your claim (and pay you any outstanding difference).”

It pays to be on the safe side, so if you’re not sure, we suggest you check with your insurer directly.”