Life is a highway, and if you want to ride it all night long on your brand new motorcycle, you may also need to be shopping for a motorcycle loan. Many lenders offer financing for new and used motorcycles, but as with a car loan, it’s important to shop around for the best rates and terms before agreeing to a motorcycle loan. There are other parts of the process that vary from a regular car loan, though, so it can be useful to know what to look for in a motorcycle loan. Here’s everything you need to know.
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What is a motorcycle loan?
A motorcycle loan is a type of loan that can be used to purchase a motorcycle. Most motorcycle loans are secured, using the motorcycle itself as collateral. Lenders may also offer personal loans to finance a new or used motorcycle. The interest rate and terms of the loan will depend on various factors, including your credit score and history, income, the make and model of the bike, and more.
How do motorcycle loans work?
A motorcycle loan can help you finance a bike if you can’t purchase it with cash. Like an auto loan for a regular vehicle, a motorcycle loan’s interest rate and terms will depend on the lender, your credit score and history, and your income. It also depends on the type of motorcycle financing you get.
For instance, if you purchase a motorcycle from a dealer, the dealer may offer you direct financing. In this case, you would put a deposit down on the bike on the day of purchase and make regular payments directly to the dealer moving forward. If, on the other hand, you finance a motorcycle purchase through a bank or another lender, the bank would give you the loan amount as a lump sum, which you would then use to purchase the bike in full. Then, you would make regular payments on the loan to the bank.
Before agreeing to a loan with a dealer or traditional lender, it’s important to shop around to compare interest rates and terms. You can do this by getting preapproved with various lenders. Your personal bank is a great place to start as it may offer you the most competitive interest rate. However, you can also look into online lenders and motorcycle dealers.
For reference, interest rates on standard motorcycle loans range from 7% to 36% and repayment terms are typically between 2 and 7 years. The longer the repayment term, the lower the monthly payment will be but the more you will end up paying in interest.
How do I use a motorcycle loan?
How to use the motorcycle loan depends on where you get the loan from.
- If you get a motorcycle loan from a dealership, the dealer will help you set up financing through either their in-house financing department or by submitting your application to a lender on your behalf. They will get the funds they need to purchase your bike, and then you’ll pay back the dealership or lender. This is a convenient way to finance a motorcycle but it comes at a cost. Dealer financing typically comes with high interest rates and added fees.
- If you get a motorcycle loan from a third-party lender, such as a bank, credit union, or online lender, you’ll use the loan funds to purchase the bike. After being approved for the loan, the funds will be deposited into your bank account and can then be used to purchase the bike from the seller. Third-party lenders typically offer more competitive interest rates than dealers. For example, if you have excellent credit, you could see interest rates as low as 6%. If you have less than excellent credit, interest rates range from 9.95% to 35.99%.
If you choose to get a loan from a third-party lender, be sure to ask about any restrictions they may have, such as only being able to use the funds for a motorcycle and not a dirt bike, scooter, ATV, or other vehicle.
Where can I get motorcycle financing?
There are essentially five places you can receive financing for a motorcycle loan. These are banks, credit unions, online lenders, dealerships, and manufacturers.
1. Banks and credit unions
You can work with a bank or credit union to get a personal loan to purchase a motorcycle. However, there are a few caveats. In order to qualify for a loan from a bank, you will likely need to have excellent credit. For a loan from a credit union, you usually have to be a member to apply. Despite this roadblock, it’s worth asking about membership, as it can be fairly easy to become a member.
2. Online lenders
For most borrowers, online lenders offer the most flexibility with rates and requirements. It’s also easy to get preapproved with online lenders, which can give you estimates of the rate, terms, and monthly payments you qualify for. Plus, the application, approval, and funding process are typically faster than they are with traditional lenders like banks and credit unions.
If you choose to arrange financing through a dealership, they will likely submit your loan application to lenders on your behalf. While this may be more convenient than doing the process on your own, many dealers add fees to the lender’s quote so the loan will cost you more. It also prevents you from being able to comparison shop to get the best deal.
Some dealers also offer in-house financing, provided directly through the dealer. While this may seem appealing, especially for borrowers with poor credit, these loans usually have significantly higher interest rates and fees.
Some motorcycle manufacturers also offer loans for new or used motorcycles. This can be worth looking into if you are shopping for an established brand, such as Harley-Davidson. You can often apply for manufacturer loans online and sometimes qualify with $0 down.
5. Financing a motorcycle with a credit card
In some cases, you may be able to finance the purchase of a motorcycle with a credit card. For instance, if you are shopping for a used motorcycle or have enough money to cover a portion of the motorcycle but not all of it. In either case, the amount you put on your credit card can’t exceed your limit.
However, you should only use a credit card to finance a motorcycle if you can pay it off quickly. Credit cards typically have much higher interest rates than loans, ranging from 15% to 30%. So, if you can’t pay off the balance within one month, you will accrue interest and quickly increase the cost of the bike.
Types of motorcycle financing
In most cases, motorcycle loans and auto loans are not classified the same. When shopping, be sure to search specifically for motorcycle loans.
When doing this, you may also find motorcycle loans are broken down into additional categories, such as new vs. used bikes and the type of “motorcycle.” For example, some lenders may not offer financing for dirt bikes or scooters. You’ll also find some lenders that don’t offer motorcycle loans at all. However, they may offer personal loans that can be used to purchase motorcycles.
Difference between secured and unsecured motorcycle loans
A secured loan is when an asset, such as the motorcycle, a different vehicle, or even your house, serves as collateral for the loan. If you fail to repay the loan, the lender can seize the asset. While secured loans typically have lower interest rates, you also risk losing your asset if you default.
Secured loans are typically offered by banks, credit unions, manufacturers, and dealers. The lender may give you the option to add a down payment, which reduces the loan amount and the interest you’ll pay on the loan.
On the other hand, unsecured loans don’t require any collateral. These loans are most often offered by online lenders. While convenient and less risky for the borrower, unsecured loans can be more expensive because the lender is taking on a greater risk as they can’t seize your asset if you fail to repay. For this reason, unsecured loans may also require good credit. Good credit scores range between 670 and 850. However, the lowest-advertised interest rates and most favorable loan terms will be reserved for people with excellent credit, or scores between 740 and 850.
Related: Secured vs. Unsecured Personal Loans
Who are motorcycle loans best for?
Motorcycle loans are best for people who:
- Can afford the monthly payments.
- Have a great to excellent credit score and can qualify for low interest rates.
- Have shopped and compared their options.
- Don’t have cash on hand to buy a motorcycle outright.
A motorcycle loan is also best for those who use a bike as a primary mode of transportation. Otherwise, having multiple loans to repay for a car and motorcycle can make managing the payments more difficult. In this case, paying cash for a motorcycle may be a better option.
Before applying for a motorcycle loan, consider all of your options and ensure the financing will fit into your budget. You can use a loan repayment calculator to help you determine if you can afford the monthly payments given the loan amount, repayment term, and interest rate.
For example, if you take out a loan for $12,000 with a 4-year repayment term at 8% interest, your monthly payment will be $268.54.
Doing this will help you determine whether or not you can afford to purchase a motorcycle.
Is it smart to finance a motorcycle?
It’s only smart to finance a motorcycle if you can afford the monthly payments, and if your credit score and history are high enough to secure a low interest rate on the loan. Otherwise, you’re taking on debt that you may default on, which could have a serious negative impact on your credit score.
Additionally, if you don’t have a great credit score that qualifies you for a low interest rate, you’ll be paying more over the life of the loan. If you can, take time to improve your score before applying for the loan.
If you do have the cash to pay for a motorcycle outright, that is likely your best option. This will ensure you don’t put your credit history at risk.
Pros and cons of motorcycle loans
|Secured loans have lower interest rates
|Can negatively impact your credit score
|Multiple options for where to get a loan from
|High interest rates for borrowers with poor credit
|Motorcycles retain value, so can be a good investment
|Unsecured loans have higher interest rates
|Give you access to transportation
|Must provide additional information with application
|Can help build credit
Alternatives to motorcycle loans
If you want to purchase a new bike but don’t want to take out a motorcycle loan, there are other options to consider.
1. Personal loan: Personal loan funds can be used for just about anything, including purchasing a motorcycle. Some personal loans also don’t require collateral, which means there is no risk of forfeiting your bike. The downside is personal loans may be more difficult to qualify for and can come with more fees. However, if you research personal loans online, you can easily compare rates and terms to find the best option for you.
2. Home equity loan (HEL) or home equity line of credit (HELOC): If you own your home, a HEL or HELOC can be a great financing alternative. Your home, not the bike, is used as collateral against the loan. The downside is if you default on the loan, you could lose your house. However, the benefit is that the interest rate may be lower on a HEL than a motorcycle loan. the current average home equity loan interest rate is 7.78%.
Related: Home Equity Loans vs. HELOC
3. Savings: If you don’t need to purchase a motorcycle immediately, taking time to save enough to purchase the bike in cash without financing can allow you to avoid taking on debt and paying more in interest and fees.
Motorcycle financing for bad credit
It may be difficult to qualify for a loan with a credit score lower than 629. That said, many banks, credit unions, and online lenders will offer bad credit motorcycle loans. Additionally, making the loan payment on time each month can help build your credit.
However, the interest rate will likely be much higher than it is for people with good or excellent credit. If you can improve your credit score before taking on a motorcycle loan, you will likely be able to secure more favorable terms and pay less in the long run.
Pros and cons of motorcycle loans for bad credit
|Unsecured so you won’t lose any collateral
|More difficult to qualify
|Can help build credit
|Interest rates much higher
|Can damage credit score
How to get the best motorcycle loan for you?
Motorcycle loans aren’t as large as auto loans or even some personal loans, but it’s important to do your research and prepare in advance in order to get the best loan for your needs To do so, follow these steps:
1. Review your credit
Your approval, interest rates, and terms will depend on several things, but one of the primary factors is your credit score. If you want to purchase a motorcycle with a motorcycle loan, it’s important to check your credit score and review your credit history before you even start your research. The major credit bureaus, including Experian, offer a free annual credit report you can use to check your score. If necessary, take steps to improve your score in order to improve your chances of approval and secure a lower interest rate.
2. Determine what you can afford
Next, because a motorcycle loan is a type of debt, you’ll only want to borrow as much as you need and can afford. This depends on your income and personal budget. Getting prequalified for a loan and estimating the monthly payments can help you decide if you can afford the loan or not.
3. Shop around
Because there are a few places that offer motorcycle loans, it’s important to shop around and compare your options. You can compare motorcycle loans right here on Credello. However, to get the most accurate rates for your situation, you will need to get preapproved with individual lenders. Then, you can compare interest rates, monthly payments and terms.
Factors to consider when comparing motorcycle lenders
When researching lenders, a few factors to pay particular attention to include:
- Loan requirements, including credit score, debt-to-income ratio, income, and others
- Total amount you can borrow and whether that meets your needs
- Monthly payment amount
- Interest rate and APR
- Loan terms
- Fees and other charges, like late payment fees, prepayment penalties, origination fees, and others
- Customer service reviews
- Application process
- Approval and funding time
- Other loan features, such as online services to manage your loan
Some of these factors may be more important than others. For example, you want the lowest APR possible, but you aren’t in a rush to make a purchase, so the approval and funding time isn’t as high a priority. Having all the information before deciding can help you choose the right lender for your needs.
How do I apply for a motorcycle loan?
Applying for a motorcycle loan is slightly different than an auto loan because you may be asked to provide different or additional information. Otherwise, the process is essentially the same.
- Check your credit score and ensure it meets the lender’s minimum requirements. Try to improve your score if necessary.
- Gather and prepare paperwork and information. This can include proof of employment and proof of income, but you also may have to provide the motorcycle’s make and year, the estimated loan amount (including protective gear, sales tax, and registration fees).
- Get preapproved. Getting preapproved online won’t hurt your credit score but can give you an accurate estimate of your future loan’s rates, terms, and monthly payments. Use this to compare lenders.
- Apply. Once you choose the right lender for you, apply for the loan. This can usually be done online. To ensure your application is approved in a timely manner, be sure to include all information and requested documentation.
- Accept the loan and get funds. Once approved, you’ll accept the loan’s terms and conditions and then the funds will be transferred to your bank account.
- Repay the loan. You’ll have to start making monthly payments on the loan right away, so factor it into your budget and be sure to make your payments on time.
In many cases, motorcycle loan rates are higher than auto loan rates because the likelihood of default is greater for a motorcycle than a car. Most lenders offer rates of 6% to 36% depending on your credit score, though some lenders have different regulations. For example, federal credit unions must cap their interest rates at 18%, but you must be a member to qualify. This may mean living or working within the credit union’s community.
Yes, you can get a loan for a new or used motorcycle, though this may limit your financing options. Some manufacturers or dealers may only finance new models while others offer financing for used bikes as well. If you know the model of the used bike you plan to purchase, look into the manufacturer’s financing options to confirm they offer financing for used bikes.
If you have an excellent credit score, proof of income, and a low debt-to-income ratio, it will not be difficult to finance a motorcycle. On the other hand, if your credit score is poor, you don’t have a steady income, or your debt-to-income ratio is high, it may be more difficult. Or, you may end up having a higher interest rate and paying more over the life of the loan. If this is your situation, you might consider having a cosigner with excellent credit on the loan. This can not only help you secure the loan but also reduce the interest rate.
Most motorcycle loans have repayment terms ranging from two to seven years, though some lenders have limited options available. Keep in mind that a longer repayment term means lower monthly payments, but you’ll owe more over the life of the loan due to interest. Shorter repayment terms have higher monthly payments but you owe less in interest.
The best way to get approved for a vehicle loan is:
- Have a credit score of at least 660 or higher
- Have steady, verifiable income
- Have a debt-to-income ratio less than 36%
- Provide all the information and documentation in the application
For most lenders, a credit score of 670 or higher will receive the best loan rates and terms. While you may be able to get a loan with a score at or under 600, the likelihood is lower, and you’ll also have much higher interest rates.
Other factors will play a role in the interest rate you receive, but your credit score has a large impact on your interest rate and whether you get approved in the first place. The lower your score, the higher your interest rate is likely to be.
Yes, a motorcycle loan can both positively and negatively impact your credit score. When you first apply for a loan, it will trigger a hard credit inquiry, which will temporarily decrease your score by a few points, but your score should rebound within a few months. If you continue making payments on time and work to decrease your overall debt, your score will likely increase. On the other hand, if you make late or miss payments, your score will decrease.