Bike Buyer Guru: Is it better to pay cash or get finance?
Craig Langton has quite the CV. Here at The Bike Show we refer to him as King Midas because, as you might’ve guessed, everything he touches turns to gold. Apart from previous businesses that were massively successful under his watch, he is the owner of Fire It Up in Fourways and within a year of opening its doors it has become the biggest selling motorcycle dealer in the country by a long way. Much of this is down to good honest hard work by him and his team, but much of it also has to do with decades of dealing in motorcycles, spotting trends and noticing nuances. Craig will be passing on much of this knowledge to our esteemed readers in his Bike Buyer Guru column that will be posted every Tuesday. Herewith this week’s column:
While many customers believe that offering cash for a motorcycle instead of financing it will place you in a better position to negotiate a deal, the truth is that motorcycle dealerships are COD businesses which means they get paid by the bank or the customer for the motorcycle and therefore there is no advantage to receiving cash.The truth is dealers prefer financing motorcycles. If a dealer insists on being paid in cash, offers a sizeable discount for cash or does not offer finance this should raise a possible red flag as to the dealers compliance. Be aware that if you pay for a motorcycle in cash notes (not EFT) over approximately R25000.00 the dealer is forced to report you to the FIC.
Dealers earn a Dealer Incentive Commission or DIC from the banks for every motorcycle that is financed through financial institutions and can range from R500.00 to R20 000.00 depending on the amount financed. It makes sense then that a dealer would be more tempted to offer you a discount if you were financing the motorcycle rather than paying cash. On some new motorcycles it has been reported that dealers will sell motorcycles at cost to remain competitive and rather earn the commission from the banks and other financial partners.
The national average shows that only around 50% of motorcycles are financed whilst the rest are paid for in cash. According to our financial partners majority of the cash used to pay for motorcycles is cash drawn from bonds and that the cash is never paid back into the bond except for the minimum amount due.
As an example, a motorcycle that is financed for R100 000.00 would cost approximately R2300.00 pm over 5 years and would cost a total of around R138 000.00, thats R38 000.00 in interest.
If the same amount of cash is drawn from your bond, your bond instalment would increase by approx. R1200.00 per month over the period of 20 years, the total paid back would be R190 000.00, nearly double. So financing the motorcycle and being committed to an instalment while having the option to settle earlier without penalties makes sense.
My Tip? In a country where only 3% of us save money, never draw excess cash from your bond unless you are disciplined enough to replace the funds, neither should you put your ‘cash in hand’ into an asset that is going to depreciate and that you would have to sell to access the cash if needed. I believe you should rather invest your cash which can be drawn if Murphy strikes or for a rainy day, and boy does it rain!
As always this article is for educational purposes only and you should seek the guidance of a qualified finance person before making any financial decisions.