Bike Life finance, are they legit?

[canadonis]

 

care to share what your interest rate is? any additional monthly or initial costs?

 

 

AFAIK,

R60k loan over 36 months with R2k payments is 13% interest (finance whizzes can correct me here - =RATE(36,-2000,60000,0,1,10%)*12

 

if there's monthly fee of R57 and initiation fee of R1000 then it climbs to 16.3%

=RATE(36,-2057,59000,0,1,10%)*12

 

Hi

 

I think there is an initiatiation admin fee + 10% deposit it as well not included in you calculations.

[DangerD]

Hi All,

 

I am one of the Bike Life guys. In fact I am the numbers guy at Bike Life.

I am a CA with 12 years' experience in financial modelling and money management and thought it a good idea to chat on the numbers section of this thread.

 

To lift our skirts and show you how the numbers work please see the image for a sample R60k deal.

As you can see a 12 month deal is priced at 10% and we top out at 18% on a 36 month deal. This is due to the time value of money - so the longer the period the more we need to charge to make our return on capital. I believe this is the most attractive rates you will see when compared to our competitors.

 

We do disclose the fees (as per the sample deal) and we all know that other finance providers also charge these fees - so when you compare us to a competitor please ensure its apples with apples. Its pretty much standard practice in the industry to exclude fees when quoting. Just check the quote from your home loan or car financer and you will see this.

 

Looking at the calc from AFAIK - there is a small adjustment to make - (we charge at end of month and not the beginning. so the last data point is 0 not 1) = RATE(36,-2000,60000,0,0,0) - this results in the interest rate being 12.25% and not 13% in the example.

 

Continuing with the example calculation - including the initiation fee of R1 000 and a monthly admin fee of R50 (not R57) the inputs in fact are:

PV - 61 000 (Not R59 000 as the fee is in addition to the loan)

Pmt - 2 050

Prd - 36

That kicks out a rate of 12.82%

 

That being said the above calc is not how we transact business. The reason is because we don’t loan the full R60k - we ask for a deposit so the net loan is a lot less. We request that our clients put down a 20% deposit - this is in fact because we know bikes are not 'assets' and that they do loose value - so rather than take a 100% loan on the bike at least your loan is at 80% of the RRP on day 1.

 

I think this shows we are being conservative lenders and don’t want our clients to be in huge amounts of debt. In fact we financed 50% of a bike in Durban last week as that was all the guy needed to ride his dream bike. Most clients finance their bikes on 24 months - so after 24 months your R60k bike still has value but you are done with our debit orders.

 

If you have any other questions you want clarity on feel free to shoot me a mail @ finance@bikelife.co.za

 

Regards,

Dale

[andydude]

Thank you for the information DangerD.

 

I have a question.

 

In your picture you show a R60,000 bike that you can finance over 12 months at R4,220 per month at 10% if you make a deposit payment of 20% or R12,000. Do you realise your numbers don't work?

 

- First of all, the loan is R60,000 - R12,000 = R48,000

- Then repayments, 12 x R4,220 = R50,640

- Therefore R50,640 / R48,000 - 1 = 5.5%

 

How exactly did you calculate that interest rate? Can you give me the exact cash flows per month of the 12 month deal?

 

I'm not a CA so might be missing the boat completely.

[andydude]

And again, nothing on that picture or on your website about being a registered credit provider or in the process of registering.

[DangerD]

Hi AndyDude,

 

You are reading the page correctly.

For a R60k bike you pay the following amounts:

Upfront - Deposit of 20% plus R1 000 initiation fee

12 months of R4 220 per month plus the R50 - so a total R4 270. Thats all and no other charges - guaranteed!

 

 

The calculation you used is a simple interest calc - which gives 5.5% that you saw. This basically assumes interest payment once in the year.

 

We calculate the amount on a monthly basis - compound interest (which is how you repay the bank for your house and car - its the standard interest method charged by the industry. This works out to an effective 10% which is what we show on our deal sheets.

 

So every month you are hitting the capital on your loan and as a result the interest portion on the remainder of the loan decreases as the capital decreases - exactly like a home loan.

 

Using the same example - At the beginning of the period the interest portion on your first debit order is R400 and the capital that is being paid is the difference of R3 820. This then decreases the capital that is outstanding so the interest that is calculated on the second month is lower.

 

On the 12th and final payment the interest is only R35 and the capital of R4 185 pays off your last loan amount.

 

Hope that helps!

 

Cheers,

Dale

[DangerD]

I will ask our IT guys to make a mention that we have applied for our NCA number on our website.

 

This is as per Devlins comment earlier - the Act allows us to lend while our application is in process so nothing to be concerned about there.

[andydude]

Using the same example - At the beginning of the period the interest portion on your first debit order is R400 and the capital that is being paid is the difference of R3 820. This then decreases the capital that is outstanding so the interest that is calculated on the second month is lower.

 

On the 12th and final payment the interest is only R35 and the capital of R4 185 pays off your last loan amount.

 

Hope that helps!

 

Cheers,

Dale

 

Excuse my questions, but it helps me to understand. I did the numbers in excel and I posted the picture below. In my mind your numbers still doesn't make sense. At 10% interest per month there will still be a shortfall of R1,732.

[Pappa Bear]

I am only allowed to finance a car or a bike..... 2 years to go on the car then I can get a new bike....

[DangerD]

Hi Andydude

 

The R1 000 initiation fee is paid upfront with the deposit and not financed. .

 

Remove that so that the loan is R48k and your calc will be spot on!

 

Regards,

Dale

[andydude]

Hi Andydude

 

The R1 000 initiation fee is paid upfront with the deposit and not financed. .

 

Remove that so that the loan is R48k and your calc will be spot on!

 

Regards,

Dale

 

Thanks!

 

Out of interest, where do you get the funding? Obviously you have to gear up too? Or do you only use your own capital?

[DangerD]

Hi Andydude,

 

Great stuff on the numbers!

 

All our funding is provided by shareholders.

 

Cheers,

Dale

[andydude]

I'm not always for borrowing, especially when it's not houses or cars, but at least that 10% is a very good rate and not close to personal loans of between 20 - 30%.

[Ramrod]

DangerD. What is bike life take on self employed Hubbers? Do you spit us out just like the banks do?

[DangerD]

Hi Ramrod,

 

Its hard to spit at entrepreneurs when that is who we are

 

We have a credit scorecard which we put all our clients through - and if you score the necessary % then you are approved.

 

In the deals we have done to-date I would say we have a healthy mix of employed and self-employed customers.

 

The best answer I can give you is to spot a bike you are keen on and give us a go!

 

Cheers,

Dale

[LazyTrailRider]

As you can see a 12 month deal is priced at 10% and we top out at 18% on a 36 month deal. This is due to the time value of money - so the longer the period the more we need to charge to make our return on capital.

 

I would imagine that your debt risk curve also accelerates more rapidly after a certain point (the typical bike does not have a stable valuation period like a vehicle with a 3 or 5 year maintenance plan does) so you would need to compensate for that to ensure that your asset value is safe in the case of repossession?

 

Either way, well done on explaining things concisely and very well, and with a transparent frame of mind. Not often one sees that on the Hub. I'm an investor rather than a borrower in most cases, and these numbers are sensible to me.

 

[Swift01]

DangerD

can you at least make it compulsory that they take out insurance on their bikes..... The way SA is with bike jackings, also you could break that new carbon frame in the first week. Hard enough for someone to be paying off a toy but to have it taken away or broken while your still paying it off eish.