You’ve had your eyes on a particular motorcycle for some time. You can’t wait to make it yours and take it for a stroll on the open road. But before you strike up a deal with the seller, you’ll need to arrange financing. Not all motorcycle loans are the same, though. So, it’s important that you prepare your finances to ensure you get a good rate and affordable monthly payment on your motorcycle loan.
What is a Motorcycle Loan and How Does It Work?
A motorcycle loan is a debt product that lets you borrow money from a lender to purchase a motorcycle, so you won’t have to pay out of pocket. You’ll make monthly payments to the lender for principal and interest over a set period, also known as the loan term.
There are two types of motorcycle loans to choose from – secured and unsecured. Secured motorcycle loans generally offer lower interest rates because they use the motorcycle as collateral. In turn, they pose less risk for the lender since your motorcycle can be repossessed if you default on the loan agreement. You may also be required to make a down payment to take out a loan.
Unsecured motorcycle loans do not require you to put the bike up as collateral. Instead, the lender will evaluate your creditworthiness to determine if you’re a good fit for financing. You can expect to pay a much higher interest rate to offset the risk assumed by the lender. But unlike secured motorcycle loans, there are no down payment requirements.
Motorcycle Loans vs. Car Loans: How Are They Different?
Motorcycle and car loans are both installment loan products that come with fixed interest rates. However, they typically have lower limits than car loans since the average price of a motorcycle is far lower. You’ll also pay a higher interest rate than expected for a motorcycle loan since the likelihood of falling behind on loan payments is much greater.
What is a Good Rate for a Motorcycle Loan?
It depends on your creditworthiness, but well-qualified borrowers secure motorcycle loans with low-interest rates. It is ideal that you have good or excellent credit and opt for the shortest loan term to qualify for a competitive rate.
Common Requirements for a Motorcycle Loan
Credit Score
Your credit score heavily affects the cost of borrowing. If you have a strong credit score, you could qualify for the best interest rate the lender offers. But if your score is on the lower end, expect to pay more in interest or be denied financing altogether.
Credit History
Lenders also analyze your credit history to determine if you’ve responsibly managed debt accounts over time. Recent credit issues could raise red flags and lead to a higher interest rate or loan denial.
Debt-to-Income Ratio
This is the percentage of your income spent on monthly debt payments, as the name implies. If it’s too high, lenders may be reluctant to give you a motorcycle loan out of fear that you’ll have trouble making timely monthly payments.
Down Payment
Down payments aren’t required on unsecured motorcycle loans. However, some lenders who offer secured loans require down payments from certain borrowers.
Condition and Price of the Motorcycle
The motorcycle’s age and condition also play a role in what you’ll pay in interest. New motorcycles come with lower interest rates than older bikes despite the difference in the price tag. But a used motorcycle with an older model year in subpar condition may come with a higher interest rate.
Three Ways to Finance Your Motorcycle
1. Manufacturer Financing
You could qualify for manufacturer financing on a motorcycle if you buy it from the dealership. For example, BMW and Harley-Davidson Financial Services have in-house financing available to qualified borrowers.
2. Personal Loan
A personal loan is another option to finance your motorcycle. Some lenders offer same-day approvals, and you can use the loan proceeds however you see fit. The downside is that the interest rates aren’t always the lowest, and loan terms are usually between three to five years. Consequently, you may get monthly loan payments that stretch your budget too thin.
3. Motorcycle Loan
Online motorcycle loans are rapidly emerging as a common financing option. You can get the funding you need instantly from an online lender without having to visit a physical branch of a bank or credit union, and the interest rates are competitive.
