If you’re looking for a new or used motorcycle, chances are you’ll need financing for your purchase. There are a few types of loans to consider, and each type offers its own benefits.
Before you take on the long-term responsibility for a loan, look around and compare interest rates and terms. A little research beforehand can solve potential headaches later.
What is a motorcycle loan?
As the name suggests, a motorcycle loan is a loan that you take out specifically to buy a motorcycle. Whilst it is possible to pay for your motorcycle in cash, it is quite common to obtain financing for the purchase of your new or used motorcycle.
Secured motorcycle loan
A secured loan is a loan where the lender requires collateral. In order to get the loan, you must do something of value to ensure the loan is repaid. Usually the motorcycle itself serves as collateral, but cars and houses can also be used to secure the loan.
Some lenders have different motorcycle loan categories depending on whether you are buying a new or used motorcycle. Different lenders also have different definitions of what they consider a motorcycle, so be sure to check with your lender before making your purchase.
Unsecured motorcycle loan
Unsecured loans require no collateral, making them a popular choice for many aspiring motorcyclists. However, the lack of collateral means that unsecured loans usually have a higher interest rate than secured loans, meaning the total amount you have to pay back is higher.
Unsecured loans also require the borrower to have a good credit history. When lenders extend an unsecured loan, they want to make sure they are dealing with someone who is financially responsible. Although unsecured loans are a bit more difficult to qualify for, they are often a good option for buying a motorcycle.
Personal Loans are one of the most popular types of unsecured loans because they can be tailored to the needs of the borrower. Because traditional motorcycle financing may require a down payment, a personal loan can be used for a down payment, or you can finance the motorcycle 100 percent with a personal loan.
How do motorcycle loans work?
A secured motorcycle loan is different from a car loan, but they work in a similar way. Once you have identified the lender you will be working with, the lender will wire the money to the seller and file a lien on your collateral (usually the motorcycle itself). You then make payments to your lender until your motorcycle is paid off.
An unsecured motorcycle loan works differently. Like a personal loan, an unsecured loan is based entirely on your past credit usage and your ability to repay the loan. If you have excellent credit and a verifiable source of income, the best interest rates are available to you. Once approved, your loan will be funded and deposited into your bank account. You can then take these funds and act as a cash buyer in negotiations with the motorcycle dealer or a private individual.
Unlike a home equity loan or line of credit, an unsecured personal loan does not use your motorcycle or other assets as collateral.
Where can I get a motorcycle loan?
If you want to take out a motorcycle loan, you have several options. Each of these has its own advantages and disadvantages, so explore them all and find the one that suits you best.
car and motorcycle dealers
Car and motorcycle dealers usually have financing options for potential buyers, but these dealers don’t always have the best loan rates for motorcycles. You may want to explore other credit options before signing up for dealer financing.
banks and credit unions
Traditional lenders such as banks and credit unions are another common way to finance a motorcycle purchase. These lenders offer a wide range of loan options that can be customized to the borrower. Some banks and credit unions offer both secured and unsecured motorcycle loans. The better your credit rating, the more credit options are usually available to you.
Many borrowers choose online financing companies because they offer better lending rates and give borrowers more flexibility to repay the loan at their own pace. There are online lenders that offer specialized (secured) motorcycle loans, or you can consider an unsecured personal loan from an online lender.
When you buy a new motorcycle, you may be able to get a loan directly from the manufacturer of your motorcycle. Not all manufacturers offer motorcycle credit, but checking to see if it’s available can be an option.
How do I get the best motorcycle loan?
Here are a few things to keep in mind to ensure you get the best motorcycle loan possible.
Check your credit history
Knowing your creditworthiness and credit profile is an important step before you start buying your motorcycle. The better your credit score, the more credit options you have and the better interest rates you’ll be offered.
Look for fees
Lenders can charge a variety of fees on their loans, and it’s important to be aware of this. Fees may include fees added by your merchant, as well as financing fees, prepayment penalties, or late payment fees. Be aware of the fees that come with each of your lending options.
Once you’ve decided which type of motorcycle loan makes the most sense, you can compare interest rates. Be sure to take a good look at the annual percentage rate (APR) of the loan. The APR determines how much the lender charges you annually for borrowing and includes the interest rate and fees.
The final result
There are many ways to finance your motorcycle purchase, from dealerships to banks, credit unions, online rental companies and manufacturers. Every loan and lender has different pros and cons, so do your research. Many lenders offer different types of secured and unsecured loans, so explore your options to find the best one for you.