Motorcycles can be used as a primary means of travel or for leisure. However, even though they tend to cost less than cars, motorcycles can still be pricey. Fortunately, there are loans out there that can offer you reasonable rates and a chance to get your hands on that new bike.
How do motorcycle loans work?
Motorcycle loans tend to be secure loans. This means a loan that requires collateral if the borrower defaults. In the case of a motorcycle loan, the collateral is typically the motorcycle. Because a motorcycle loan generally is a secured loan, it will likely be easy to get approval and have a better interest rate.
Where can I get a motorcycle loan?
You have quite a few options if you decide a motorcycle loan is for you.
Bank or credit union
Using your bank or credit union to obtain a motorcycle loan will feel similar to an auto loan. You can get a pre-approval to learn how much you qualify for and use that to shop for your motorcycle. After selecting your bike, you would still need to apply for the loan, but pre-approval is a great way to get an idea of your interest rate and the amount you can borrow.
Online lender
A loan from an online lender will likely be unsecured. This means that your bike will not be used as collateral for the loan like a secured loan. Additionally, some unsecured loans do not require a down payment. Qualifications for the loan tend to be more strict. An online lender will be looking for an excellent credit score to prove trustworthiness. Keep that in mind when considering this option.
Dealership
Using the dealership to obtain a motorcycle loan can provide convenience. This is also a good option if you have poor credit, but it could come at a cost. Dealership loans tend to include more fees and have higher rates. This is an excellent opportunity if you are not in the best position to finance, but make sure you understand what you are signing up for first.
Manufacturer
You can purchase the motorcycle directly from the manufacturer and finance through them. These loans can be low interest and sometimes do not require a down payment. Some popular brands might even throw in some accessories or bike swag.
Keep in mind you’ll be tied to that manufacturer if you are approved through them. If you change your mind about them, you will need to apply again through another manufacturer. Their rates will likely be competitive, and you’ll have the advantage of getting the financing and purchase done all in the same place.
Financing options for a motorcycle
Now that we have figured out where to finance, let’s look at the options available for financing.
Personal loan
Personal loans can be used for many reasons. In fact, depending on how much you are approved for, you can use a personal loan to get your motorcycle and potentially handle any other financial obligations.
With a personal loan, you get approved for an amount and then draw on the loan. In some cases, your approval amount can exceed the cost of your loan. You would then use the funds to pay for your motorcycle and make monthly payments based on the agreed terms.
Motorcycle loan
Motorcycle loans work similarly to auto loans. You obtain pre approval to get an estimate of the terms. Once you have found your motorcycle, you apply for the loan for the exact amount of the bike you chose. You can use a check to pay the seller directly and make your monthly payments to the banks.
Manufacturer financing
Manufacturer financing goes directly through the motorcycle manufacturer. Think about some of the most popular brands, your loan would go directly through them. This can have some benefits.
BMW, for example, offers product protection that will be included directly into your monthly payments. When applying for a manufacturer’s loan, you will apply and obtain approval directly through the manufacturer. Upon obtaining approval, which you could apply for either online or in person, the transaction would happen at one stop.
What credit score do I need to get a motorcycle loan?
Your credit score is an essential part of the approval process. Your credit score should be in the good to excellent range to get competitive financing. Most lenders require a score of at least 620 or higher.
A lower credit score does not automatically mean you will not be approved for a loan. Still, it could play into your ability to get a lower interest rate or could require a down payment.
Unsecured vs secured motorcycle loans
Unsecured motorcycle loans and secured motorcycle loans have some similarities. Both require approval and have loan terms, meaning the length of the loan and monthly payment amount, which can vary based on the borrower’s needs.
Secured loans are typical when getting a motorcycle loan. Secured means your motorcycle will be used for collateral if you default on payments. This is seen as less risky to a lender, resulting in a lower interest rate. Unsecured loans mean no collateral. The lender is providing you with the loan in good faith that it will be paid off on time.
Because the lender has no collateral, these loans tend to have higher interest rates. In some cases, someone may choose an unsecured loan if they plan on putting down a sizable down payment. Unsecured loans tend to have shorter terms and no prepayment penalties than secured loans.
6 tips for getting a motorcycle loan
Now that we know about the different loans, if you are still questioning if you qualify, here are some tips to make sure you are in the best position to get approval.
Review your credit
Your credit score plays a significant role in your approval. Make sure you know your credit score before applying to prevent any surprises. If you have any discrepancies on your credit, try to clear those up before applying for the loan to help improve your score and your chances of landing a better score.
Set your budget
Motorcycles can range in price. Set your budget before you start looking, and stick to it. Once you begin shopping, you might be tempted by bikes with more features, thus raising the price. Remember your budget so that you don’t spend more than you can afford.
Compare lender requirements
As explained, there are lots of options to finance your next motorcycle. It might be tempting to go with your first offer but make sure you compare lender requirements. Consider requirements such as needing a cosigner, fees, or even if you are allowed to pay your loan off early with no prepayment penalty.
Having multiple quotes also provides you with the leverage to negotiate with a lender you prefer. Use the quotes to negotiate any additional fees, your monthly payment, or even your interest rate. Doing your lender research can benefit you in the long run.
Annual percentage rates
Annual percentage rates (APR) essentially are how much it costs to have the loan over the life of the loan. Simply put, the lower your APR, the less you pay for the life of the loans. So compare rates to ensure you get the lowest one available to you. It will save you money in the long run.
Repayment terms
Make sure you have a clear understanding of the repayment terms of your loan. The longer your repayment period means, the smaller your monthly payment will be over the loan terms.
This could also mean paying more in interest. It is important to discuss plans that work best for you, even if it means a longer term with lower monthly payments or a shorter term with larger monthly payments.
Additional loan features
Some loans offer additional features such as discounts on interest rates for auto-deduct payments. Ask questions about how you can make your loan work in your favor to see if you can save additional funds.
Getting your dream motorcycle
According to the Insurance Institute for Highway Safety, there has been an increase in the number of motorcycles on the road. More and more are seeing the benefits of getting a bike. It does not have to be hard to get your hands on one.
From ensuring your credit is in good condition to choosing the best way to finance it, you can make sure you get the best rate and get the motorcycle of your dreams with a bit of research.
FAQ
What is the average interest rate on a motorcycle loan?
The average interest rate on a motorcycle loan is currently 4.25%. This varies based on credit score and lender.
How long are motorcycle loans?
Motorcycle loans tend to be between 36-60 months but no longer than 5 years typically.
Is it hard to finance a motorcycle?
It is not hard to find financing for a motorcycle. It is important that you have your credit in order and potentially a down payment if your credit score is on the lower side. This can be helpful when looking for a better rate or a lower monthly payment overall.
