Ready to hit the open road with a brand new, or new-to-you, motorcycle of your own? Before you start shopping for the ride you’ve always dreamed of, it’s important to consider your overall financial picture and what lenders might be willing to offer you.
It might seem like shopping for a motorcycle loan is the same as shopping for a car loan, but there are a few financing caveats that are unique to purchasing a motorcycle.
Here are a few to be aware of.
Your loan may take the form of a credit card.
Unlike car manufacturers, some motorcycle manufacturers offer credit cards as a means to finance and pay off your loan. The credit card itself carries the name of the motorcycle manufacturer, but is managed by a third-party bank (e.g. Capitol One).
The terms for this type of card can vary – some offer an introductory or promotional interest rate that will expire after a designated period of time, others will extend the rate over the life of the loan.
However, it’s important to note that late payments change your interest rate to the standard rate (which could be >20%). Payments that are more than 60-90 days late will cause the default rate to kick in – as high as 28%.
If you plan on having a longer period of financing, but the card terms state that your lower interest rate will expire in a few months, this likely won’t be the best option for you.
Whatever you do, read the fine print.
Longer loan terms could be a problem over the long run.
You’ve probably heard that cars depreciate significantly once they are driven off the lot. Unfortunately motorcycles aren’t much better – in fact, they tend to depreciate even quicker than cars.
So while a longer loan term might help you lower your monthly bills, it could mean that at some point in the future you owe more on the motorcycle than it’s actually worth.
If you have the ability to put some cash towards the purchase, or opt for a bike that would allow you to make payments within your budget but under a shorter loan term, that will be a much better option in the long run.
Be prepared for higher interest rates.
While interest rates can vary based on the financial health of the applicant and the length of the loan, generally interest rates for “specialty vehicles” – like motorcycles, boats, and RVs – are higher than that of cars.
The thinking behind this is if you are struggling financially, you are most likely to put available funds towards high priority items first – your mortgage, daily bills, etc. – and your motorcycle loan could fall into default as a result.
Again, interest rates will vary, but be ready to pony up more dough simply for the type of loan you’re requesting.
Those who shop around before looking for a bike will get the best deals.
Just like shopping for a car, financing options for your motorcycle should be explored before you’re sitting in the dealership across from a pushy salesperson and a bike you just can’t seem to pass up.
Dealers will offer financing directly to buyers, but there’s always a good possibility that the terms are not the best you can find. Look into getting a personal loan or, if your situation warrants considering the manufacturer credit card, that’s an option as well.
Whatever form of financing you go with, make sure you also ask about the type and amount of insurance coverage that will be required with the loan – it may be more than you would have otherwise considered.
Your financial picture will play a large part in the amount and terms of your loan.
The biggest negotiating tool you have when it comes to getting a motorcycle loan is a financial record that speaks to your dependability as a borrower.
Before shopping for loans, take advantage of the one free credit report you can receive annually from each of the three credit reporting agencies: Experian, TransUnion and Equifax. Go through each report (they may not look exactly the same) to get a sense of what potential lenders will see and to make sure all information is being reported correctly.
If you carry balances on credit cards, try to get your credit utilization ratio (your balance divided by the credit limit) below 10-20%. This will show lenders that you are not using every dollar of credit extended to you – another sign of a good borrower.
Getting your financial ducks in a row before starting the process of purchasing a motorcycle will ensure you are getting the best terms and rates available – and that will make your ride home from the dealership that much sweeter.