General

Personal Contract Purchase explained

If you’re thinking of buying a new bike, there is a strong chance you’ve heard the phrase PCP mentioned. If you don’t know what it means – read on.

PERSONAL CONTRACT PURCHASE, or PCP as it’s known, is an alternative to hire purchase or using a credit card as a way of buying a new bike.

The option to pay using a PCP deal has been around for a while now and made it easy for dealers shift units at a time when the UK motorcycle industry, and most of the EU and wider world, were in the grip of the economic slowdown.

What is Personal Contract Purchase?

PCP is a way of buying a bike and paying some of the balance off over one, two, three or even four years. You will normally pay a deposit at the beginning of the agreement, although most dealers will take a bike in part exchange instead of a cash deposit.

You can either pay the minimum deposit stipulated by the dealer or opt to pay a higher amount if you like, doing so will help decrease the amount of your monthly instalments.

The key difference between PCP and HP is that the value of the bike at the end of the agreement is agreed by you and the vendor when you sign the contract and this money is put to one side. This sum is called the Guaranteed Minimum Future Value (GMFV) and is calculated by taking into account the age of the vehicle and how many miles it has done during the time of the agreement – you normally agree an annual mileage when taking out a PCP deal.

With the GMFV set to one side until the end of the agreement, your deposit and monthly instalments are only paying off what is left and not the bikes total value, meaning the monthly instalments are normally substantially lower than that of an HP agreement.

What happens at the end of a PCP agreement?

There are a few things that can happen when the agreement comes to an end, not making up your mind until the end of the deal is not a problem.

What’s a balloon payment?

One thing you can do at the end of the deal is pay the GMFV or balloon payment and keep the bike. Some people use the low instalments offered on a PCP deal to help them to save up enough money to clear the final payment and own the bike.

Can I give the bike back?

Yep, you’re perfectly within your rights to just hand the keys back and walk away but beware, if you have exceeded the agreed mileage set out in the contract you may be liable to pay an excess mileage charge. Sometimes this can be as little as 40p per mile, which doesn’t sound much but it’ll soon add up if you’ve overdone it. Also beware that if the bike is not in decent condition when the contract ends, you might be liable to pay for the damage. At least to get the bike up to the condition of a used bike of the same age and mileage.

Can I trade the bike back in for another PCP deal?

Absolutely and the dealer will probably love you for it but, you can only do it if you have equity left in the bike. It gets a little tricky but if you have kept the bike in exceptional condition and kept well below the mileage agreed in the contract, your bike might actually be worth more than the GMFV. This excess cash could be used as equity to put against the deposit of a new bike.

The dealers love this because they get a new bike sale chalked up on the area managers whiteboard, they get a decent second-hand bike as used inventory that’s known to them, and they get to extend the relationship they have with you as a customer. Make the most of that final part and be cheeky when doing the trade in deal, why not ask for a discount on riding gear or some accessories is a good shout.

Can I settle the deal mid-way through the deal?

Yes, although it’s important to check with the finance company you are with as they all different rules that apply. It’s safe to say there will be some sort of penalty to pay although it’s like to be less than the interest paid over the same amount of time.

PCP pros

  • Generally lower payments than PCP
  • Three options at the end of the agreement
  • Flexible deposit options – some companies have even offered no deposit
  • Choice to settle fully or partially at any point
  • FCA regulated for peace of mind

PCP cons

  • Once the mileage is agreed it’s fixed, most companies can’t/won’t change that
  • Damage to the bike can be charged to you at the end of the agreement
  • Paying off the GMFV with a credit card could end up costing more than HP

Honda CBR650R PCP example

Price

£7729.00

Deposit

£1493.73

Monthly repayments

36 x £99.00

Optional final payment

£3687.03

APR

6.9%

Mileage

4000 miles p/a

Total payable

£8754.76

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