What’s a PCP deal?

Q. More and more bike companies are offering Personal Contract Plans (PCP) and it looks like a tempting way of buying a new bike every few years. What’s the catch?
Graham Bayes, by email

A. PCP deals are getting more popular because they are a relatively new way of getting a new bike. The idea is that you only pay finance on a part of the value of the bike after putting down a deposit (normally 10% minimum).

You then have an Agreed Future Value (AFV) which the bike cannot be worth less than no matter what.

At the end of the term you either pay off the rest of the finance and own the bike or use the difference in the market value and AFV as the deposit on your next bike.

The catch is there’s every chance you’ll never own the bike and interest rates are usually higher.