PCP/Finance - The facts
 

Following on from some posts in "Bikes-Talk and Issues"
To address some of the recent posts;
"But the bike still isn't yours until the end" - This is true of any Hire Purchase agreement, of which PCP is just one. Hire Purchase is exactly that - Hire with an option to purchase which is exercised by making all of the payments under the agreement including the "Option to Purchase" fee (usually about £10) at the end. So PCP is no different. The only way to own the bike from day one but still spread the cost is via a personal loan. These can be a minefield as lenders advertise "Representative APR". This is usually a headline figure which is offered to 51% of SUCCESSFUL applicants, which is usually about 50% of applicants. Others that are accepted will be offered a higher rate "based upon their circumstances". This means that the underwriting for personal loans is much tighter than HP where the loan is secured by the goods. Also, on HP the customer is protected under the Consumer Credit Act. The main parts of this refer to the right to terminate the agreement (the halves rule) and the need for a court order before the goods can be repossessed (the thirds rule). Under these rules, if a customer has paid more than half of the total amount payable (TAP - usually when the goods are not worth the remaining half) they can surrender the goods and terminate the agreement. If they have paid more than one third of the TAP then the lender will need a court order before they can repossess.

"let's say the vehicle in question looses 25% of value the moment you take possession and continues to fall then it gets written off within 6 months, obviously the insurance company won't pay the "as new" price so I guess you'd end up paying the shortfall for nothing" - this perfectly illustrates why lenders will usually ask for at least 10% deposit which means that the borrower is less likely to be in negative equity for long. Finance companies don't just lend to anyone, they have to lend responsibly and need to establish that the customer can and will actually repay the loan. Many insist on fully comprehensive insurance to mitigate their losses - it is not in their interest to place their customer in difficulty. Most insurance companies pay "new for old" for the first year of a bikes life which means that they will supply a replacement bike and dispose of the written off one. If a bike is on finance and is written off then the insurance company will establish this via an HPI check and will then repay outstanding finance first. Finance companies rebate any remaining interest for early settlement after charging one month's interest as an early settlement penalty. So if the write off occurs early on then the majority of the interest will not be paid.

"The bikes not yours at the end unless you can stump up the final payment. Made to look like your getting it at half price. These deals ...... double the monthly cost and ask yourself can you afford it? You dont own it. Its like a 'hire' deal." This is no different to a longer HP deal. What borrowers have tended to do is to spread their loan over a longer period in order to afford the monthly payment. If they settle early it is exactly the same as making the final payment on a PCP deal except for the fact that the PCP is properly designed to generate equity in the bike at the end so that the customer has a deposit for their next bike.

"My thoughts, if you cannot pay cash. Bung it on a 0% card and at the end of the deal term, transfer the balance to another 0%. Just pay off a couple of hundred each month, don't use the cards for anything other than balance transfers and if the deals dry up. Talk to the bank manager." - An excellent way of avoiding any interest at all and something that is growing in popularity. However, there are pitfalls - namely that if you do buy anything in addition to the balance transfer, it will be added to the balance and interest charged for as long as there is a balance on the card - this relates to the order in which credit card companies apply your payment to the outstanding balance - the interest-bearing part (i.e the amount that you have added) will always be paid last so the interest will be substantial and usually at a high rate. Even if you don't add anything, you must be completely disciplined and ensure that any remaining balance is either paid off or moved to another card before the interest-free period expires. If not, you will be charged interest on the remaining balance backdated to the day it was added to the card.

"In 4 years you wont want to shell out £4400 on that old bike you have had for ages as the grin factor will of worn off years ago. So if times are hard you may not have the option of another bike if you give it back without getting back into another finance deal and actually never owning anything" Which is why the Guaranteed Future Value (GFV) is always conservative. If you did take the agreement over 4 years (most are 2-3 years) then the final payment would be around 25% of the original retail price making it very unlikely that you would be in negative equity and therefore are more likely to have a deposit for another agreement. The truth is that nobody actually NEEDS to won a bike, car etc but in the UK we have a thing about ownership. Ask yourself - why would you want to own something that continually depreciates? What you actually want is full and unrestricted use of the bike, which is exactly what you are getting.

PCP main benefits:
GUARANTEED minimum future value - which means that even if something goes horribly wrong with the bike trade and your bike is worth less than the GFV, you get the option to give the bike back which pays any outstanding amount off.
Shorter agreements - agreements are usually more in line with buyers change habits, i.e. 2-3 years
Lower payments - more affordable payments (which is actually how the majority of buyers budget) meaning less likelihood of default.
Lower maintenance costs - because the bike is usually new or late used, maintenance is lower and defects are covered by manufacturer warranty. Also, no MOT for the first three years.
In order to protect the best interests of the customer (a legal requirement under new FCA guidlelines) the agreement should be set up with no more than 10-15% deposit and a conservative GFV so that the customer has equity equal to their original deposit when it comes to change time.

Let me know if anyone would like any other myths exploded!!:)

Re: PCP/Finance - The facts
 

Most of the people on here won't like PCP because they actually care for their bike, not just ride like the Litre sportsbike warriors.

Also it's easier for people to find sub £2k to buy a bike and look after it than £200-£300 a month on what is essentially a toy. So i just can't buy the saving on 3 MOT's at £90, not servicing breakdowns etc . . . . Teach people to look after what they got not treat it like a throw away toy.

Re: PCP/Finance - The facts
 

The thing is that people want new stuff and, like it or not bike maintenance can be expensive - especially for things that are beyond the scope of the average spanner wielder. Like most people on here, I've already spent a substantial amount on maintaining and improving my bike. Caring for the bike is actually a requirement of a PCP agreement and the buyer has a vested interest in making the bike as desirable as possible at the end so that they achieve the best price for it and thereby generate the biggest amount of equity.
"Also it's easier for people to find sub £2k to buy a bike and look after it than £200-£300 a month on what is essentially a toy. So i just can't buy the saving on 3 MOT's at £90, not servicing breakdowns etc" - I agree - but you will then only ever have a bike that is worth less than £2k and costs you more to maintain. It's an interesting exercise to add up the original cost of your bike, the cost of all your maintenance (including your own time) and then add the amount by which your bike has depreciated and then see what you are left with sitting in your garage. Having ridden a new bike today, I can confirm that new ones are streets ahead of old ones in terms of technology, performance, handling and safety. But as I say, each to their own - if money were no object, I suspect that you probably wouldn't have an SV in your garage?

Re: PCP/Finance - The facts
 

If money were no object I'd still be on my speed four.

Re: PCP/Finance - The facts
 

Liar!

Re: PCP/Finance - The facts
 

Nope.


If I really wanted to prioritise that way I could go out and buy a new bike but there isn't one I like more and there's a lot to be said for getting to know your bike and how it handles.

If money were really no object I might have additional bikes but the 4 would still have pride of place.

Re: PCP/Finance - The facts
 

That's great and I'm glad that you like it so much. Which new bikes have you ridden lately?

Re: PCP/Finance - The facts
 

All the triumphs (apart from the new tiger)

But I don't really have to ride most of them, I don't even like the looks of most bikes.

Re: PCP/Finance - The facts
 

Then it sounds like you have found your perfect match - congratulations. I, unfortunately can't stop changing my mind. If money really were no object, I would have one of each!

Re: PCP/Finance - The facts
 

I use personal loans to buy my bikes and other large ticket items, been buying stuff like this for 25 years, suits me perfectly.

Being self employed, I treat a bike as an asset, I can afford it, but if I got injured at work or my earnings dropped off a lot, I wouldn't hesitate to sell it and clear the loan, of which the loan balance is way lower than what the bike is worth.

Sometimes I could buy big stuff outright without loans but still choose to buy with a loan so I don't use my savings up, the savings are there for hard times just in case.