The riding season has started, and you can see yourself cruising the highway with your new motorcycle. However, motorcycles are not cheap. If like many bikers you are planning to get a loan, here are six steps to find the best motorcycle loan available for your new ride.
1. Calculate your monthly budget
Riding a motorcycle is considered a high-cost hobby, as it involves more than a one-time purchase. If you decide to take a loan, you’ll need to spend a certain amount of money every month until it’s paid off. Moreover, you’ll need to factor in depreciation, license renewals, insurance, gear, and maintenance.
2. Find out if your credit score is at least 620
A poor or fair credit score will limit your options. 620 is an arbitrary but useful baseline. You may still qualify for decent rates if your score is under that, but it’s unlikely. Everyone is entitled to one free credit report every 12 months from each of the three nationwide credit reporting companies: Equifax, Experian, and TransUnion. You can order them from AnnualCreditReport.com, which is the only authorized website for free credit reports.
If your credit score is lower than 620, work on improving it first, so you can increase the chances of getting approved and a lower interest rate.
3. Consider dealer financing but don’t fall for marketing gimmicks
With all motorcycle loans, including dealer financing, consider paying a down payment, which will reduce the loan balance and increase the qualifying chances. Since motorcycles tend to depreciate faster than cars and trucks, most financing periods are limited to 36 to 60 months only.
Most dealers offer direct financing to consumers. However, the interest rates would largely depend on your credit history. Since some dealers will approve buyers with poor credit, which most banks would deny, it could be a last resort. Just buckle up for some seriously high rates.
4. Consider OEM financing
OEM stands for Original Equipment Manufacturer. In OEM financing, the manufacturer is the lender. It’s common for automobile and motorcycle manufacturers. Harley-Davidson and Yamaha, for instance, offer this type of financing for their new bikes.
Sometimes manufacturers offer zero-interest financings, such as when they’re trying to get rid of old models or new models that aren’t selling well. If you’re interested in a specific model, ask the dealer whether they’re selling it with a particular OEM financing program.
This kind of offer can be quite attractive. However, not every borrower will automatically be receiving this zero rate, as the lender will most likely still require a good credit score. They also look at your auto loan history and the amount of the down payment. For both dealership and OEM financing, your motorcycle is used as collateral, so, in the case of default, they will repossess it. Notice that new models may come with other perks, such as large rebates, that may not be available when you apply for 0% APR financing. To learn more about the pros and cons of 0% APR financing, read this article.
5. Apply for a personal loan
A personal loan is an unsecured loan without any collateral. This means you won’t automatically forfeit your bike if you miss payments. This type of loan depends on your credit history and verifiable source of income. So the higher they are, the better the rate you’ll get. The problem is you often don’t know what rates you will qualify for until you complete the application form. To get a fixed rate, most lenders require a hard pull on your credit, which will lower it a little. Repeat that enough times and your credit score will drop significantly.
SuperMoney has a loan offer engine that allows you to apply for a loan with multiple lenders without hurting your credit. Not only will you know your rate. You will also find out what terms you qualify for and what your monthly payments will be. All for free, instantly, and with no credit damage. Even if you think you have already found the best rate possible, there is not a downside to seeing what rates and terms you can get.
6. Consider credit cards
Credit cards are another option. The obvious advantage is that your motorcycle isn’t collateral for the loan. So, in the case of default, the lender will not automatically repossess it. If you qualify for a 0% APR balance transfer card, you could finance your bike for free and qualify for whatever other perks your dealership is offering.
Now, the disadvantages.
First, if you don’t qualify for a 0% APR credit card or the introductory period expires, interest rates are usually pretty high. You might need to pay 12% to 23% APR.
Second, not all motorcycle dealers accept credit card payments. If your motorcycle dealer doesn’t accept this type of payment, you’ll need to obtain a cash advance. However, the interest rates for cash advances are usually higher than for credit card purchases, and they usually include larger fees.
Find the Best Motorcycle Loan
Now it’s time to see if you can be pre-approved for a personal loan using our SuperMoney engine. You can also compare rates and terms of various lenders for an auto loan without hurting your credit score.