If you’re in the market for a new or used motorcycle, it’s likely that you will need financing for your purchase. There are a few kinds of loans to consider, and each type offers its own benefits.
Before taking on the long-term responsibility of a loan, shop around and compare rates and terms. Some research beforehand can solve potential headaches later on.
What is a motorcycle loan?
As the name suggests, a motorcycle loan is a loan that you take out specifically to purchase a motorcycle. While it’s possible to pay cash for your motorcycle, it is fairly common to get financing for buying your new or used motorcycle.
Secured motorcycle loan
A secured loan is one where the lender requires collateral. To receive the loan, you have to put up something of value to ensure the loan is repaid. Usually, the motorcycle itself will act as collateral, but cars and homes can also be used to secure the loan.
Some lenders have different categories for motorcycle loans depending on whether you buy a new or used motorcycle. Different lenders also have different definitions of what they consider as a motorcycle, so make sure to check with your lender before you make your purchase.
Unsecured motorcycle loan
Unsecured loans don’t require collateral, making them a popular choice for many would-be motorcyclists. However, the lack of collateral means unsecured loans usually have a higher interest rate than secured loans, which means the total amount you’ll pay back will be higher.
Unsecured loans also require borrowers to have a good credit history. If lenders provide a loan without collateral, they want to ensure they’re dealing with someone who is financially responsible. Although unsecured loans are a little harder to qualify for, they’re often a great option for buying a motorcycle.
Personal loans are one of the most popular kinds of unsecured loans because they can be tailored to fit the needs of the borrower. Because traditional motorcycle financing may require a down payment, a personal loan may be used for a down payment, or you can finance 100 percent of the motorcycle with a personal loan.
How do motorcycle loans work?
A secured motorcycle loan is different from a loan for the purchase of a car, but they work in a similar way. Once you’ve identified the lender you’re going to work with, the lender will transfer the money to the seller and file a lien on your collateral (typically the motorcycle itself). You’ll 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 entirely based on your history of credit usage and ability to repay the loan. If you have a great credit history and a verifiable source of income the best rates will be available to you. Once approved, your loan is funded and deposited into your bank account. You can then take these funds and act as a cash buyer when negotiating with the motorcycle dealer or private party.
Unlike a home equity loan or line of credit, an unsecured personal loan will not use your motorcycle or any other assets as collateral.
Where can I get a motorcycle loan?
If you’re looking to get a motorcycle loan, you have a couple of different options. Each of these comes with their own pros and cons, so explore them all and find the one that works best for you.
Auto and motorcycle dealerships
Auto and motorcycle dealerships will usually have financing options available to potential purchasers, but these dealerships don’t always have the best loan rates available for motorcycles. You may want to check out other lending opportunities before signing on to dealership financing.
Banks and credit unions
Traditional lenders like banks and credit unions are another common way to finance a motorcycle purchase. These lenders offer a wide range of options for loans that can be adjusted to the borrower. Some banks and credit unions will offer both secured and unsecured motorcycle loans. Typically, the better your credit, the more loan options you will have.
Many borrowers choose online financing companies because they offer better borrowing rates and have more flexibility for borrowers to pay the loan back at their own speed. There are online lenders that will offer specific (secured) motorcycle loans or you can consider an unsecured personal loan from an online lender.
If you’re buying a new motorcycle, you may be able to get a loan directly from your motorcycle’s manufacturer. Not all manufacturers offer motorcycle loans, but it may be an option to consider if it’s available.
How can I get the best motorcycle loan?
Here are a few things to consider to make sure that you get the best motorcycle loan possible.
Review your credit
Knowing your credit score and what your credit profile looks like is an important step before you start shopping for your motorcycle. The higher your credit score, the more loan options you’ll have available to you, and the better interest rates you’ll be offered.
Look for fees
Lenders can charge a variety of fees for their loans, and it’s important to be aware of them. Fees can include those added by your dealership and for financing charges, prepayment penalties or late payment fees. Be aware of the fees that come with each of your lending options.
Once you’ve decided what kind of motorcycle loan makes the most sense, you can compare interest rates. Make sure to take a close look at the loan’s Annual Percentage Rate, or APR. The APR will determine how much the lender charges you annually for borrowing and includes the interest rate and fees.
The bottom line
You have many options to finance your motorcycle purchase, from dealers to banks, credit unions, online lenders and manufacturers. Each loan and lender comes with different advantages and disadvantages, so shop around. Many lenders offer different kinds of secured and unsecured loans, so explore your options to find the best one for you.