PCP deals for motorbikes?

[Dr Jekyll]

klingelton said:

, PCP/hire purchase are both expensive ways of financing a vehicle, but who has £20k lying around to buy a new car?

People who don't waste money paying interest on PCP/Hire purchase.

[Charger500]

Just playing devil advocate here, to help explain this to myself, bear with me... so you get a PCP deal on a £10k bike (all hypothetical figures), you put down a £1500 deposit, and you negotiate a guaranteed future value of £5k in view of condition and agreed annual mileage etc. and then you pay £150 a month for the pleasure...

After 3 years, you either pay up £5k and keep the bike or you take the guaranteed future value price and flip the bike against a new one again on another PCP deal... only this time you've put down a £5k deposit which has lowered your monthly payment further... 3 years later, so an so forth...

So every 3 years you're on a new bike and after the first 3 years the monthly payments should be pretty low? I guess if you were looking to do a PCP deal as a one off it makes no sense, but if you're expecting to keep it rolling for 2 or 3 or more time over many years it might work out pretty good value... until you finally cash in on the last guaranteed future value deal...

Can these PCP deals be done over a 12 month period?

[Dr Jekyll]

Charger500 said:

After 3 years, you either pay up £5k and keep the bike or you take the guaranteed future value price and flip the bike against a new one again on another PCP deal... only this time you've put down a £5k deposit which has lowered your monthly payment further... 3 years later, so an so forth...

You give the bike back to cover the final payment, if the real value is greater than the guaranteed value, the difference goes towards your next deposit. The dealer will probably try and judge it so that there is such a difference, partly to cover themselves if trade in values plummet and partly to encourage you to sign up for another 3 years.

[Pothole]

Dr Jekyll said:

3DP said:

There's a reason why when you go into a car dealer's these days the first question the salesmen are told to ask is "What is your monthly budget?"

The last time I was in a car dealer that question wasn't asked at all. Once I'd found a car I liked then I was asked how I normally financed my cars. 'Cash' I said, 'that's always the best' admitted the dealer.

Was it Mike Brewer?

[moto_traxport]

3DP said:

The main difference I can see is that with a straight line loan, you are buying something you CAN'T really afford and with PCP you are buying something you REALLY can't afford.


In my view PCP should be illegal to offer individuals and should be for companies only as the OpEx model and cashflow arguments along with tax write offs make it a legitimate form of financing.

Absolutely spot on

Bad enough for cars. Mental on bikes used as toys.

[Pothole]

Who mentioned bikes used as toys?

I looked into this recently with a view to using a Tiger 800 for commuting. Decided against it.

[3DP]

J B L said:

I'd say it depends on the bike and the value you can get out of it at the end and that's the gamble and in my opinion the bank usually wins, twice.

Take that 899 deal http://www.ducatiuk.com/news/899_panigale_trioptio...


You pay £3000 deposit and expect to get at best £6000 at the end. The cost of the bike jumps from £14k to up to £17... as you have to find more cash for the deposit of the next bike.

If you sell privately, you might get a bit more back, that's provided your buyer doesn't question the fact your bike's on finances.

If you need to borrow some money [which I'm not against, many people do when bikes reach the price they're at today], take a loan, stretch it in time, say 5 years, sell the bike after 3, reimburse loan. The difference is your deposit for the next one.

Might be simplistic view but that's what I'd do. I'm fairly simple, me

^^This.

Lets take the OP's case and assume that he is not a man with money to generally piss away and also has aspirations of building some wealth through his life to pay for his retirement or kids or a bigger house or pay off his mortgage - rather than leverage to hell, go bankrupt at the first sign of crisis and then blame the banks for forcing money upon him.

Scenario 1.
Current asset is SV650 = £1500
p/x or sell for deposit the £105 per month for 3 years on new Street Triple R = £3780 spent on PCP.

At the end of the 3 years, assuming no penalties for mileage or condition - hands back bike and gets £0.

Total spent = £5280. Net worth £1500 poorer and has no money from any bike to put towards next purchase, or has to stump a lump sum or new loan to keep the bike.

Scenario 2.
Current asset is SV650 = £1500
p/x or sell it for £1500. Borrow £6000 @4.7% over 36 months from AA loans with payments of £181.33 per month.

At the end of 3 years you own a 3 year old Street Triple R outright worth approx £4500.

Total spent = £8027. Net worth £3000 richer rather than £1500 poorer and you still have a bike that you now pay no money towards and you can use towards your next purchase.

If the £81 extra a month in payments is a deal breaker, then really, you should be questioning whether you should be buying a brand new bike at all.

PCP keeps the poor, poor and ensures that you don't ever have that £20k laying around to buy something you want in the future. It also propogates and helps inflate the credit bubble that led to the financial crisis (and which Europe and the UK have done nothing to actually fix the root causes of).



In my experience also - there are two types of people who extol the virtues of individual PCP plans.

1. Those that have enough money that really it's just used as a cash-flow tool. They know the payments aren't going to affect their standard of living and they know they'll be richer from income in 3 years time whether they PCP'ed it or not, but at the time didn't have the liquidity (cash immediately available) to pay for the item outright that they wanted.

2. Those that are fairly broke, but with a reliable income and have taken the plunge, so are in the PCP/debt cycle already. They convince themselves that not having to MoT a car or worry about a gearbox going etc, somehow offsets the massive and calculable downsides on a purchase that covers interest only + depreciation on an expensive, fast depreciating asset, in a time frame that maximises your depreciation losses. The type that live month to month, hand to mouth and moan about how broke they are before pay day and how on earth they are going to find £800 for a new boiler in the house, whilst having a 14 plate vehicle on the driveway.

[Fats25]

I have to bite!

I think you have missed person 3 from your list Pete. and that is a person like me, that wants a nice car, has the cash to pay for it, but would rather leave that money off-set against their mortgage to pay the mortgage off quicker, and would like the piece of mind of not having to be worried about any unknown costs occurring (with exception of tyres, accidents etc).

In 2009 this is what I did:-

Car 1 - Mercedes CLS 2009 (i.e. brand new)
Specification - Purchase Price £48,000
23 months PCP - £485 per month + 3 months deposit (including first payment)
1 years Tax (first year paid for) = approx £270
1 years Service paid (returned a day early before 2nd service was due) = approx £250
Finance cost £99
Return (Damage) £145
Total spend = £13374
Miles driven = 20,000
Cost per year = £6687

In 2012 this is what I did:-

Car 2 - Volkswagen Touareg 2009 (car was 25 months old at the time)
Purchase price for me £24,000
2 years tax - approx £900
2 years servicing - approx £1600
2 years extended warranty - £1000
Miles driven = 20,000
Value after two years = £16000
Total Spend = £11,500
Cost per year = £5750

So it has cost me less than £1000 per year to drive around in a 2 year newer car, with piece of mind that if anything goes wrong, the manufacturer warranty will cover it. Also I have none of the hassle of having to sell to get my next car. Approx £3 a day for all of the above advantages - I work with people that spend more on coffee every day!

I also am missing £24,000 that could be offset against my mortgage, and it is only costing me (fortunately for me) beer money every month for the monthly PCP cost.

So why did I purchase rather than lease? Because I wanted to tow a trailer, and I thought that getting a tow bar fitted to a lease car would be a hassle in the initial outlay and when returning the vehicle. It may well have been - but I know that the PCP model was better for me.

I still agree - I cannot make the numbers work for a bike, as there is not enough value in a bike for a relatively low outlay. I also agree that it is not for everyone - if you need to think about the possibility of not being able to make all of the payments then don't do it.

As for loans, I cannot see why you would get a loan for a new car if PCP is available. A loan would be a last resort. However for a bike perhaps it works.

Horses for courses though - but if I am in same situation with my finances next time around, I will PCP.

Edited by Fats25 on Thursday 6th March 19:24

[bogie]

as with all financial products if you understand it and know what you are doing, you can use to your advantage if circumstances fit

I know a few people with supercars on PCP at low rate whilst they invest their hundreds of thousands elsewhere in risky business that pays off most of the time....

For the less well off, or those with different financial goals, the maths is even better if you are happy to always drive 3 year old lightly used vehicles

Choose as follows:

36 months paying PCP, trade the vehicle back and repeat again

or

save up the payment for 36 months and buy the lightly used ex PCP vehicle for cash, own it forever if you wish, no monthly payment

If you have the patience or cash you can make your money go even further if you can cope without "new"

[3DP]

^^ Chris - firstly - you fall into category 1. If you can better use the cash in investments or offsetting or a business, then technically, it's not liquid in the fact that you don't want to move it to pay for a car.

The 2 cars you are comparing are apples and oranges in my view. Different tax and you chose to extend warranties. Additionally, 2009 was a low ebb for new car sales so there were some cracking deals out there, of which your Merc clearly was one. I'm sure at the time if comparing a discounted new Merc on normal finance or a cash purchase, the sums may or may not have been different, but that's the only true comparison that can be drawn. If it worked out well for you, more power to you, but your regular person does not do that level of analytics and often doesn't even work out the total cost of the PCP plan!

My figures are factual for the OP's case though and give or take would be similar for most PCP vs personal loan vehicle purchases.

Personally, I prefer the save and spend model as with compound interest (meaningless for the last few years) and profits/yields from other investments, then the sums are even more convincing. Last year was a pretty good year as the GSXR and ZZR were effectively 'free' off the back of just two fairly small investments over 5 years. I did however spend my 20s saving and investing and endeavouring to squander as little money as possible on depreciating items or expensive holidays. Horses for courses as you say, but it's stood me in well and allows me to sustain a decent lifestyle in my 30s once kids etc came along without being stoney broke. It's amazing how much more carefully people spend money when they've actually saved it first.

As for people who say "You have a mortgage, why not PCP?". It's a different thing entirely. Borrowing for a disposable item that will depreciate to zero vs. borrowing for something that acts as a home, an investment and a pension plan, to a greater or lesser extent are two entirely different things.


As bogie says above, if you can cope with second hand then it's a whole lot better - which is what I do for cars - generally 2.5 years old with a bit of manufacturers waranty, bought outright. Thing is that's a different argument altogether, so I've kept my figures and arguments to purely the best way to fund debt based purchases of a new vehicle.

Unfortunately PCP just dangles that carrot in front of you that is very tempting - "hmmmm - fk it - I have a spare £500 a month - look at what I could be smoking about in". Fits right in with the instant gratification, no responsibility, no consequences society we live in, in the West.

[Charger500]

Dr Jekyll said:

You give the bike back to cover the final payment, if the real value is greater than the guaranteed value, the difference goes towards your next deposit. The dealer will probably try and judge it so that there is such a difference, partly to cover themselves if trade in values plummet and partly to encourage you to sign up for another 3 years.

Cheers, yeah my bad... I knew what I was thinking but it didnt' translate into typed words very well

Seems a lot of bks really... I bet if there's anything to be made over the GFV it's a pittance... I guess the only way to look at it is you're paying a deposit every 3 years. must workout cheaper to finance through normal loan etc. (as already stated)... Cheers.

[Fats25]

Pete - I will give you the tax piece. Perhaps that was unfair to include in the example, but what I was trying to show is that you will only pay half the tax over 2 years, or 2/3 the cost over 3 years etc.

The warranty is a necessity (I feel) on modern cars. I am sure Fleegle had to scrap his car because of an issue with a light that was too expensive to fix, and I seem to remember you having a fear of failure of your Mercedes being too expensive to fix, and resulting in your car being sold quickly. The risk of your money in a vehicle is high if you purchase. Not on PCP.

So the additional warranty cost is a valid comparison. As it happens my car has had nearly £2000 in warranty work (Air bags!) over the past 2 years, so financially it was worth it. Every warranty has cost me £50 excess, which I would not have paid on a brand new car - and every warranty claim is hassle. So remove the additional tax for a larger vehicle, and add the warranty claim costs, and it is the same. Still a cup of coffee a day for piece of mind, and no hassle come selling time.

I will also give you that I could fall into category 1 - is just not the way I picture it. I just picture it that I am doing the most sensible thing for my money with the least grief.

Back on topic for the OP - rather than general PCP vs Purchase - I still can't justify PCP for a bike!

[Baryonyx]

Dr Jekyll said:

The last time I was in a car dealer that question wasn't asked at all. Once I'd found a car I liked then I was asked how I normally financed my cars. 'Cash' I said, 'that's always the best' admitted the dealer.

When was that, 1988?

[CPC]

Thanks for all the input guys. This is just a idea

I can buy say a 18 month old bike outright but would rather keep that money for a rainy day or if the boiler blows up etc! I was basically looking at this just needing to do 2 extra deals at work per month would pay the monthly PCP figure, as what I do is commission based and a affordable way to have a nice new bike.

other than my mortgage I have never had any form of credit/loans etc so gaining information on these deals

Edited by CPC on Thursday 6th March 20:54

[eddd1e]

Buying a bike on PCP that is less than 1 year old with around 500miles is a reasonably sensible move if you change your bike every year or two. Doing this works out much better value than buying a brand new bike on PCP (and often in cash). Someone else has taken the 1-2k hit that any new bike gets when they are ridden out of the showroom.

I don't buy into the old 'if you're financing something, you cannot afford it bullst'.

[3DP]

Fats25 said:

Pete - I will give you the tax piece. Perhaps that was unfair to include in the example, but what I was trying to show is that you will only pay half the tax over 2 years, or 2/3 the cost over 3 years etc.

The warranty is a necessity (I feel) on modern cars. I am sure Fleegle had to scrap his car because of an issue with a light that was too expensive to fix, and I seem to remember you having a fear of failure of your Mercedes being too expensive to fix, and resulting in your car being sold quickly. The risk of your money in a vehicle is high if you purchase. Not on PCP.

So the additional warranty cost is a valid comparison. As it happens my car has had nearly £2000 in warranty work (Air bags!) over the past 2 years, so financially it was worth it. Every warranty has cost me £50 excess, which I would not have paid on a brand new car - and every warranty claim is hassle. So remove the additional tax for a larger vehicle, and add the warranty claim costs, and it is the same. Still a cup of coffee a day for piece of mind, and no hassle come selling time.

I will also give you that I could fall into category 1 - is just not the way I picture it. I just picture it that I am doing the most sensible thing for my money with the least grief.

Back on topic for the OP - rather than general PCP vs Purchase - I still can't justify PCP for a bike!

I'll give you the warranty piece, but to qualify, Fleegle's Jag and my Merc were both 9 year old 100k+ mile cars. There are lots of horror stories on VW it seems and with things like Range Rovers it's worth it, but I had a Lotus Elise (3 years old and used for lots of track work), TVRs, an old Range Rover, Land Rovers, newish Vauxhalls, Citroens, Renaultsport Clios and Fords - all just out of manufacturers warranties and never had a bill anywhere near what the warranty extension cost would have been. Chuck in Finance costs and depreciation and running costs pale to insignificance. The Merc did catch me out though with 2 sudden electrical failures, but it was old and leggy with a full history file with all receipts showing no major costs to that point (AFAIK!).

[Fleegle]

3DP said:

Fats25 said:

Pete - I will give you the tax piece. Perhaps that was unfair to include in the example, but what I was trying to show is that you will only pay half the tax over 2 years, or 2/3 the cost over 3 years etc.

The warranty is a necessity (I feel) on modern cars. I am sure Fleegle had to scrap his car because of an issue with a light that was too expensive to fix, and I seem to remember you having a fear of failure of your Mercedes being too expensive to fix, and resulting in your car being sold quickly. The risk of your money in a vehicle is high if you purchase. Not on PCP.

So the additional warranty cost is a valid comparison. As it happens my car has had nearly £2000 in warranty work (Air bags!) over the past 2 years, so financially it was worth it. Every warranty has cost me £50 excess, which I would not have paid on a brand new car - and every warranty claim is hassle. So remove the additional tax for a larger vehicle, and add the warranty claim costs, and it is the same. Still a cup of coffee a day for piece of mind, and no hassle come selling time.

I will also give you that I could fall into category 1 - is just not the way I picture it. I just picture it that I am doing the most sensible thing for my money with the least grief.

Back on topic for the OP - rather than general PCP vs Purchase - I still can't justify PCP for a bike!

I'll give you the warranty piece, but to qualify, Fleegle's Jag and my Merc were both 9 year old 100k+ mile cars. There are lots of horror stories on VW it seems and with things like Range Rovers it's worth it, but I had a Lotus Elise (3 years old and used for lots of track work), TVRs, an old Range Rover, Land Rovers, newish Vauxhalls, Citroens, Renaultsport Clios and Fords - all just out of manufacturers warranties and never had a bill anywhere near what the warranty extension cost would have been. Chuck in Finance costs and depreciation and running costs pale to insignificance. The Merc did catch me out though with 2 sudden electrical failures, but it was old and leggy with a full history file with all receipts showing no major costs to that point (AFAIK!).

My Jag had only just hit 70K. I scrapped it because I had a hissy fit. I remember the bloke at the garage calling me the next day and asked if I was serious about scrapping it. I thought £700 to fix the faulty indicator was a bit daft. The year before that £500 to replace the front hub, the year before that £600 on suspenders, and before that, a grand at a Jag dealership for a service. This is on a car that under my ownership was doing 2-3K miles a year. A lot to be said for buying new!!

[Dr Jekyll]

Baryonyx said:

Dr Jekyll said:

The last time I was in a car dealer that question wasn't asked at all. Once I'd found a car I liked then I was asked how I normally financed my cars. 'Cash' I said, 'that's always the best' admitted the dealer.

When was that, 1988?

Early March 2014.

[Dr Jekyll]

Charger500 said:

Seems a lot of bks really... I bet if there's anything to be made over the GFV it's a pittance...

Not necessarily. The sellers often set the GFV below the expected realistic value. Partly to give themselves a safety margin if values collapse. But also because the main point of PCP from their point of view is to make it easy to sell you another vehicle in a few years time, so arranging that the equity covers the deposit and you can swap for another brand new car for only a few more pounds a month is ideal for them.

[mike-r]

Fleegle said:

My Jag had only just hit 70K. I scrapped it because I had a hissy fit. I remember the bloke at the garage calling me the next day and asked if I was serious about scrapping it. I thought £700 to fix the faulty indicator was a bit daft. The year before that £500 to replace the front hub, the year before that £600 on suspenders, and before that, a grand at a Jag dealership for a service. This is on a car that under my ownership was doing 2-3K miles a year. A lot to be said for buying new!!

A lot has to be said about the value of a Haynes manual as well