You want to buy a new or used motorcycle but don’t have enough cash on hand — a motorcycle loan could be a viable option to finance the purchase. Before you apply, though, understand that not all motorcycle loans are the same. Shop around and compare your options to ensure you get the best deal.
What is a motorcycle loan?
As the name suggests, a motorcycle loan is a loan specifically used to purchase a motorcycle. It is offered as a secured or, less commonly, unsecured debt product.
Secured motorcycle loan
A secured motorcycle loan requires collateral, which means you have to put up something of value to ensure the loan is repaid. The motorcycle itself will almost always act as collateral, and it can be repossessed if you fall behind on loan payments.
Some lenders have different categories for motorcycle loans depending on whether you buy a new or used motorcycle. Lenders also have varying definitions of what they consider a motorcycle, so check with your lender before you make your purchase.
Unsecured motorcycle loan
Unsecured motorcycle loans don’t require collateral, making them a popular choice for many would-be motorcyclists. They usually have a higher interest rate than secured loans since these loan products are riskier for the lender.
You’ll also need good or excellent credit history — typically a score of 670 or higher — to qualify. If lenders provide a loan without collateral, they want to ensure they’re dealing with someone who they can confirm is financially responsible. Although unsecured loans are a little harder to qualify for, they’re often a great option for buying a motorcycle.
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 find 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 a little 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.
Where can I get a motorcycle loan?
If you’re looking to get a motorcycle loan, you have a few 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 buyers, but their rates aren’t always the lowest. You may want to check out other funding sources 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. They offer a variety of flexible loan options, and you will generally have more products to choose from if you have a strong credit score.
Many borrowers select online financing companies because they offer competitive rates and flexible loan terms. 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. While not every manufacturer offers financing, those that do may also offer financing specials.
3 steps to get the best motorcycle loan
Here are a few things to consider to get the best motorcycle loan possible.
1. 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 will have available to you, and the better interest rates you will be offered.
2. 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, prepayment penalties and late payment fees. Compare the fees attached to any financing options that you’re considering.
3. Compare rates
Once you decide 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 to borrow funds and could add several hundreds or thousands of dollars to the amount you will pay for the motorcycle over the life of the loan.
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 to find what’s best for you.