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Mon, 21 Sep 2015
An introduction to the not-so complicated world of motorcycle finance
We asked BMW Motorrad's very own Phil Thornton, Regional Manager for BMW Financial Services and a self-confessed motorbike enthusiast, to explain to us a little about what the different options are and why they’re changing the way people buy motorbikes for the better.
Finance options – the tried and tested approach.
With hire purchase you pay the entire cost of the bike spread over a few years, starting with a deposit and X number of monthly instalments. It’s greats for someone who wants to keep their bike for a long time,– and it’s much more affordable than paying the entire cost on day one.
There are still people who pay in cash after putting money regularly into a bank or building society, saving up until they can afford the bike. This is the reverse of that, really. You get the bike and get to ride it straight away!
What’s Select (PCP), and why is it so popular?
The big change in the market is PCP – personal contract purchase. BMW Group has been at the forefront of this revolution. PCP has been the de-facto option for financing cars for decades and we have offered it as BMW Select on motorbikes for over eight years now.
Take a bike like our R 1200 GS – the world’s most popular motorcycle. A two-year PCP agreement would give a lower monthly payment than a five-year hire purchase one would.
The industry is waking up to it. Why? It gives you a more affordable monthly payment over a shorter period of time. It offers you a newer bike than you might think possible and you can change it more frequently.
How does Select work?
You pay a small deposit, between 0-15% (up to 40%) of the total value of the bike. You then pay your monthly payment for, say, 36 months.
At that point the final payment is due. And you have three choices.
1) You pay the final balance (in cash or by re-financing it) and you keep the bike.
2) Whatever the market value of that motorbike at that point, you can hand the keys back and walk away with the slate clean and not a penny owing, subject to the agreed mileage not being exceeded and the bike being properly cared for.
3) The most popular option (with over 60% of customers) is that you part exchange the bike for a brand new one. The part exchange value pays the full balance remaining – and any extra equity left over is yours to spend on anything you want, typically towards the deposit on the next bike.
Customers get the benefit of BMWs amazing resale value and the security of three options for their next step. The BMW Motorrad bike has a very favourable residual value which pays off the final balance (this is what’s colloquially called the ‘balloon payment or GFV’ and the extra equity is your deposit for the next one.
And it means you can have the latest and greatest motorbike without the hassle of buying and selling.
What’s the next step?
Every BMW Select agreement is tailored to the customer’s requirements. It’s a bespoke deal; we work with you to get your ideal monthly payment and deposit. You can also choose your own mileage allowance, anything from 4,000 to 20,000 per year. Our bikes are built to tour the world and we want you to be able to do just that!
You don’t have to put down a cash deposit; you can trade in any motorbike, including other manufactures.
And you don’t have to use the whole value. You could trade in your £5k bike, use £2K as a deposit and walk out with a cheque for the remaining £3k. (World of BMW tours will gladly take you somewhere great for that...!)
This isn’t limited to brand new bikes - but also BMW Motorrad’s Approved Used Bikes.So, is it popular? Absolutely. More than three out of every four motorcycles financed through us are on a PCP agreement.
Also, you can settle an agreement early if you wish. If you decide you want something different in the range, just pop into your BMW Motorrad retailer and they will calculate the amount outstanding vs the value or your bike and put a proposal together for your next next bike, once again tailoring it to your requirements.
If you want to know more, visit your local BMW Motorrad Retailer – I think you’ll be very pleasantly surprised about how affordable our motorbikes will be!
What do these terms mean?
Personal Contract Purchase (PCP) -
You finance the cost of the motorbike over an agreed term. At the end of that term you either pay the balloon payment, or you hand the keys back and the GFV of the bike pays off the rest of the balance. Effectively, you are just paying for your use of the bike.
Balloon payment –
this is a common description for the final balance outstanding on the motorbike at the end of the PCP period. The GFVof the bike will always cover this amount.
Guaranteed Future Value (GFV) –
when you take out a PCP plan, BMW Financial Services guarantee a buy-back price for your motorbike, which will cover the final balloon payment. This gives you protection should there be a dramatic change in the industry resulting in bike prices falling. What’s more, these GFVs are designed to give you extra equity at the end.
Extra equity –
Generally you’ll be offered more for your bike at the end of the plan than the balloon payment outstanding. This extra equity is usually put down as the deposit on a brand new bike.
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