Understanding The Different Types of Loan
When you begin your motorbike loan journey you'll come across the different types of loans available. Though similar in many aspects, it is important to understand the differences between them so you can choose the one that best suits you.
Personal Contract Purchase (PCP)
Personal Contract Purchase or PCP is more complex than many of the funding methods. With PCP, part of the value of the bike is set aside to the end of the contract, so that you pay for the remainder over a fixed period. Interest though is calculated on the full amount, and you will repay the interest on the deferred amount during the contract. Once you've paid the standard monthly payments you get 3 different options on what to do with the deferred amount (or balloon). Once it ends you can either :
- Return the motorbike to the finance company
- Pay the balloon payment and keep the motorbike
- Use the resale value towards a new motorbike
PCP often requires a deposit and you need to agree to an annual mileage usage which can result in penalties if you go over, as the deferred amount is calculated using the expected mileage and age of the bike.
Hire purchase is simpler than PCP and is the method of financing we use at Advantage Finance. Similarly to PCP, with Hire Purchase you'll make regular monthly payments. However, the future value of the bike will not be deferred and you will pay the HP rentals on the full price of the bike. Essentially what this means is that at the end of the agreed term, you'll own the motorbike when using Hire Purchase, and there are no annual mileage restrictions, giving you full flexibility to do what you wish.
Brand New or Second Hand?
The amount you borrow will play a large part in determining how much your monthly payments are (as will term length). The age of the motorbike and its history will of course impact its price so it is worth shopping around and considering if a second hand vehicle is a better option for your financial situation.
Both options have their pros and cons so it is worth weighing them up. New motorbikes often come with warranties, will have low mileage (as much as standard test drive) and you'll know the history of the vehicle, which means you're less likely to find hidden faults caused by other users. On the other hand, second hand motorbikes are often far cheaper, which means you may be able to get a model with more extras than a newer, similar model. If you do opt for a second hand motorbike, be sure to ask for a full report history, and consider a warranty to cover your purchase.
Consider If You Can Afford The Repayments
Financing a motorbike or indeed any vehicle is a long financial commitment, so it is important to sit down and really look at your finances. Looking at your monthly incoming and outgoings and how stable your financial situation is before you take out a loan for your motorbike.
Although Advantage Finance are very supportive and flexible, non or late payment can result in serious credit problems. Your payment history is registered with credit reference agencies which affect your credit rating, and eventual default or repossession have serious consequences, so it is important you work out honestly and realistically what you can afford each month.
Think About The Extras
Once you have considered if you can afford the repayments, you'll also need to think about the additional costs of owning a motor bike. This includes things like fuel, maintenance and crucially insurance. These extra costs can sometimes be forgotten so it is important to keep them in mind.
Think About The Length of the Motorbike Loan
A motorbike loan is a long-term investment, and you're responsible for paying the loan off in its entirety. While low monthly payments can be enticing, being tied to those payments for a longer duration will not only increase the length of your investment but could also result in you paying more interest on the loan so it is important to take loan length into consideration.
The Impact of Your Credit Rating
When considering a loan for your motorbike, your credit score will play a role in setting your monthly payments. As a rule of thumb the better your credit score the lower your risk the more favourably lenders look at you. There are a number of different websites out there such as Experian where you can check your credit score.
If your credit score is less than ideal, then don't panic. Advantage finance are specialists in motorbike finance for those with a lower than average credit score. So before you lose hope, be sure to see how we can support you!
Take The Time To Understand APR
Annual percentage rate (APR) is the annual rate of interest charged to you and is used to help you understand the cost of borrowing. It gives you the % increase you can expect to pay and takes into consideration other factors such as repayments. APR rate is calculated by multiplying the periodic interest rate by the number of periods in a year in which the periodic rate is applied.
It is a complex topic, of which you can learn in greater detail here. Generally, the lower the number the better, as the level of interest you'll be paying will be less. Though this isn't always the case which leads are nicely into our next point.
Read The Small Print
We know, we know, this one may be a bit of an obvious one, but we're all guilty of occasionally zooming straight to the bottom of a page and accepting T&Cs or signing documents without taking the time to digest the information in front of us.
With something as large as a motorbike loan the small print is extremely important and can have a huge impact on the loan and you. For example by examining the small print, you'll be able to identify if there are any hidden fees. So as long winded as it may be, put the kettle on, make yourself a drink and read over the small print.
The Right Motorbike Loan For You
If this blog has fueled your ambition for a motorbike loan then please head over to our website today to get started on your quick and seamless motorbike finance application. For more information, call 01472 233200 to speak to a member of our helpful and friendly team.
If you have found this blog helpful, you may wish to read our previous blog on: 125cc Motorbikes On Finance.