How does PCP work and what are the options?

Published: 21 October 2016

While motorcycles have never been better value than they are right now, we’ve also never had more things fighting for our money. But PCP is about as close to a win:win situation you’ll ever get where motorcycles and bank balances are involved.

Personal Contract Purchase has gone from being a rare oddity in our world to taking 20-30% of the new bike finance market, and it’s growing fast. If we follow the trend of the car market, over 90% of financed new bike purchases could be by PCP in five years.

But it might not be right for you, so make sure you fully understand what it is and how it works. The figures look crazy for some makes and models – but it’s not as mad as it might seem. You can have these new bikes for less than you might ever have imagined – and what’s more you can have another new one in three years’ time, probably without increasing your monthly outlay, or having to find a fresh deposit – the only catch is that the bike won’t be owned by you unless you make the final payment.

The system works by making you pay for the bike’s depreciation (plus the interest), rather than the full retail price. Add in a decent deposit, and you’re only paying back a small chunk of the loan value, which is how you end up with such a temptingly low monthly outlay.

So what’s the catch?
At the end of the contract period, you don’t own anything, and instead have a decision to make: do you pay off the outstanding amount and keep the bike; give the bike back and walk away owing – and owning – nothing; or do you roll your PCP deal over?

So what do you do next?
Most will use the equity in the GFV (Guaranteed Future Value) as a deposit, and roll onto a new PCP deal. But be aware that you might not have enough equity to do this, meaning you’ll need to find a new deposit.

What am I really paying for?
You’re effectively entering into a long-term hire agreement, so if you run the bike into the ground you’ll end up having to pay more than the agreed value at the end. But if you check the interest rate is competitive and research the future values of similar bikes, keep your bike serviced and in tip top condition, and you can’t go far wrong.

Option 1: Personal Contract Purchase

Most dealers offer PCP schemes through one or two big finance houses – this is how it works...

  • Get your budget worked out, based on what you can afford as a deposit and as monthly repayments for the duration of the contract
  • You can get PCP on any amount from £1500 upwards
  • Choose your new motorcycle (or a used one – bikes up to three years old can also qualify)
  • Set a repayment term of between two to four years
  • Set your annual mileage at up to 24,000 miles a year. Your annual mileage will affect your monthly payments and future value. Most deals are based on 4000-6000 miles
  • Decide on which end-of-agreement option is best for you when the time comes – most roll on to another bike 

This option’s great if... 

  • Not owning the bike outright doesn’t bother you 
  • You like to keep your options open 
  • You’re looking for flexible deposit options 
  • You can work with a mileage allowance of up to 24,000 miles a year (more will incur penalties) 
  • You want to pay over a period of two to four years in regular, relatively small, monthly payments 
  • You want to pay equal monthly payments across the term l You are worried about an unexpected fall in the value of the bike (thanks to the ‘G’ in Guaranteed Future Value) 

At the end of the contract... 

  • When your contract comes to an end you have three options:
  • Part-exchange the motorcycle for another one – subject to settlement of your existing finance agreement 
  • Return the motorcycle. If it’s in good condition and has not exceeded the allowed mileage you will have nothing further to pay 
  • Hand over the final payment figure and can keep the bike 

Be aware that...

  • You do not own the motorcycle and won’t unless you pay the final balloon figure 
  • A significant proportion of the credit is deferred until the end of the contract, and it’s not the cheapest route to ownership 
  • You must have fully comprehensive insurance 
  • Excess mileage charges apply 
  • Abuse or neglect will damage your bike’s GFV 
  • Your motorcycle is at risk of repossession if you do not maintain contractual repayments 

Carl Stark bought his Kawasaki Z1000SX on a PCP deal in the second week of July from Bowen Moto in Chatham. He has put 900 miles on the bike since new and now pays £122 a month, after an initial deposit of £1500.

This bike was priced at £9695 and came fitted with mods including a tail tidy and top box. Carl opted for this scheme because it’s cheap and the repayments are low; he already runs another bike and two cars on PCP. The deal allows him to ride for 6000 miles per annum and he says that’s more than enough – as he only uses the bike as a summer toy.

Payments are spread over three years and then there is an option to pay off the rest of the bike, however Carl says: “The option to trade in after the third year and get a new machine is very attractive.”

Option 2: Hire purchase deal

If you want a bit of security with your purchase, and you’re comfortable with the bike belonging to the finance company until you’ve paid off the whole contract, then you could go with this option – a good old-fashioned hire purchase contract.

The benefit is that you can buy the motorcycle you want while spreading the cost over a period that makes it more affordable within your financial landscape. After paying an initial deposit you get to ride away on your new pride and joy, on the strict agreement that you’ll continue to pay the remaining instalments to the end of the term.

Once you’ve made all the payments – the motorcycle is wholly yours to do with as you wish. Most dealers offer hire purchase through one or two big companies – this is how it works...

  • Get your budget worked out based on what you can afford to repay – you can borrow any amount from £1500
  • Choose your new motorcycle (or a used one – higher value bikes up to 12 years old can usually qualify)
  • Set a repayment term of one to five years, based on your monthly budget 

This option’s great if...

  • You want flexible deposit options – 0% deposit, and 0% finance may even be available, subject to status
  • You want a simple repayment sum at fixed interest rates, so you’ll always know the amount of each payment for the duration of the contract period
  • You want to own your motorcycle outright at the end of the contract 

Be aware that...

  • You must have fully comprehensive insurance during the finance term
  • Your motorcycle is at risk of repossession if you do not maintain your agreed repayments
  • You have no protection against the bike’s depreciation in valueYou do not own the motorcycle until all of the payments have been made

Lynn Perry test rode her Kawasaki Z800 Sugomi special edition at the end of June and instantly fell in love with it. Offered a 0% finance deal over a three-year agreement, she has since done roughly 400 miles on the bike - after purchasing it as a 50th birthday present to herself.

The price of the bike was £8531 and after part-exchanging her old Kawasaki Er-6n for £2500 and putting a cash deposit down of £2000, she now has £4031 to pay on finance. This is being done through monthly payments of £120. Lynn wanted to own the Kawasaki outright and so opted for finance over other payment schemes such as PCP.

The machine came fitted with an Akrapovic exhaust and some carbon trickery and, with the money saved on a 0% finance deal, Lynn has also added a tail tidy and seat cowl to complete the look.

Option 3: Personal loan

Short of saving up your pennies until they become a tide of pounds, benefitting from a windfall, or being in the simplistically enviable position of being loaded – you could fall back on option three: the personal loan.

The beauty is that it’s just a lump sum, which you can use to fund whatever takes your fancy – the loan is not tied to the bike. The only proviso is that you pay it back at the rate and times agreed.

Buy a bike, add some kit or accessories, something nice for your partner – the choice is yours. There are various routes to a personal loan, but your own bank is a good place to start...

  • Get your budget worked out based on what you can afford to repay across the period of the loan – you can borrow anything from £400 to £25,000 over one to five years
  • Find your perfect bike (the fun bit)
  • Set a repayment term of one to five years, based on your monthly budget 

This option’s great if...

  • You want to own your motorcycle outright from the start of your loan
  • You want fixed, regular payments
  • You want the flexibility to buy kit or accessories at the same time 

Be aware that...

  • You can’t just terminate the agreement and hand the motorcycle back to end the loan agreement
  • You have no protection against the bike’s depreciation in value

Simon Brown bought his black and yellow Ducati Scrambler Full Throttle in January of this year using a personal loan. At a rate of 4.9%, he has since put about 1500 miles on it and doesn’t regret his payment decision, saying: “Well it means I can have a nice bike.”

Simon used the loan to cover the cost of the bike’s price and is paying £200 a month over a 36-month agreement. Put off by the treadmill of replacing vehicles every three years with PCP, the bike is free of dealer restrictions – meaning he can do whatever he wants with it.

Since owning the bike, he has only fitted crash protection, with the bike already coming fitted with a Termignoni exhaust. Money is taken from Simon’s account by direct debit, much like a mortgage and there are no penalties for making over-payments.