Should I Finance a Motorcycle?

Nothing feels greater than hitting the open road on a brand new motorcycle, but should you finance a motorcycle? 

When you finance a purchase, you borrow money and pay it back with interest. Usually, you repay it in monthly installments. Before the lender gives you the money, you sign a contract outlining how much you are borrowing, the interest rate, how much your monthly payments will be, and when the loan will be paid in full.

In this article we will cover should you finance a motorcycle, where to finance a motorcycle and the pros and cons using these options. . 

KEY TAKEAWAYS

• You can get a motorcycle loan by using a loan from the dealer, or using motorcycle loans from a bank, credit union, or unsecured loans from online lenders
• The higher your credit score, the better the rate you’ll receive on your motorcycle loan
• Before deciding on financing a motor vehicle assess your current financial situation..

Is Financing a Motorcycle a Good Idea?

The decision to finance a motorcycle can be a good idea for some people, but that decision greatly depends on your individual financial situation and preferences.

Before deciding on financing a motor vehicle assess your current financial situation to determine if you can comfortably afford the monthly loan payments. Take into account your income, expenses, existing debts, and emergency fund. It's essential to ensure that financing a motorcycle won't strain your finances or lead to financial difficulties.

Where to Take Out a Loan for a Motorcycle

There are several options available to take out a loan for a motorcycle, some of the most  common places where you can secure a motorcycle loan are: 

Online Lenders: 

There are several  online lenders that specialize in motorcycle loans. Some popular options for online motorcycle loans are MotorcycleLender, MyAutoLoan and Credible.

Using online lenders for motorcycle loans can offer various advantages, but it also comes with some potential drawbacks. Here are the pros and cons to consider:

Pros

• Convenience and Speed: You can complete the application process from your home, and many online lenders provide quick responses and funding decisions.
• Ability to Compare Multiple Offers: Using online lenders often times allow you to compare loan offers from various lenders, making it easier to find the best terms, interest rates, and repayment options that suit your needs.
• Soft Credit Check: Many online lenders offer pre-qualification or pre-approval processes that involve a soft credit check. This allows you to see what loan terms you may qualify for without impacting your credit score.

Cons:

• Lack of Personal Interaction: Online lenders operate digitally, which means you may not have face-to-face interaction with a loan officer. 
• Potential Scams and Fraud: As with any online transactions, there is a risk of encountering fraudulent or unscrupulous lenders.
• Security Concerns: Sharing personal and financial information online can raise security concerns. Ensure you're using secure websites and reputable platforms when submitting sensitive data.

Credit Unions

Credit unions are nonprofit financial institutions that often offer competitive interest rates and flexible loan terms for their members. 

Pros:

• Lower Interest Rates: Credit unions are often not-for-profit institutions, which allows them to offer lower interest rates on loans compared to traditional banks or dealerships
• Lower Fees: Credit unions tend to have fewer fees associated with their loans compared to larger financial institutions. 
• Easier Approval: Credit unions may have more lenient eligibility requirements and more understanding underwriting processes, making it easier for individuals with average or less-than-perfect credit scores to secure financing.

Cons:

• Limited Branch Network: Some credit unions might have a smaller physical presence which could affect your convenience when accessing services or making payments.
• Fewer Incentives: While credit unions usually offer competitive interest rates, they may have fewer promotional incentives or rewards programs compared to big banks or dealerships.
• Online Services: Not all credit unions have fully developed online banking platforms, which could be a disadvantage if you prefer to manage your loan digitally.

Motorcycle Dealerships: 

Many motorcycle dealers offer financing options directly to their customers. They work with various lenders or have their own financing programs. 

Pros:

• Convenience: A motorcycle dealership is convenient, as you can handle the entire purchase process in one place. 
• Specialized Financing Options: Motorcycle dealerships often work with multiple lenders who specialize in motorcycle financing. This may lead to more tailored loan options that suit the specific needs of purchasing a motorcycle.
• Streamlined Process: Dealerships are experienced in handling vehicle financing, so the process is usually streamlined and efficient. 

Cons:

• Higher Interest Rates: While dealerships may offer competitive financing options, their interest rates can sometimes be higher.
• Limited Options: While dealerships work with multiple lenders, the range of options they can offer may still be more limited than what you could find by shopping around with various lenders.
• Additional Fees: Be cautious of potential hidden fees or add-ons that dealerships might include in the financing agreement, which could increase the overall cost of the loan.

Banks: 

Traditional brick-and-mortar banks, such as Chase and Capital One  provide motorcycle loans. They typically offer competitive interest rates, especially if you have a good credit score. 

Pros:

• Better Interest Rates: Banks are large financial institutions that have access to significant capital, allowing them to offer competitive interest rates, especially with a good credit scores.
• Wide Range of Options: Banks typically offer a variety of loan options, including different term lengths and down payment requirements.
• Clear Terms and Conditions: Banks are known for providing transparent and clear terms and conditions in their loan agreements, helping borrowers understand their obligations and potential costs.

Cons:

• Stricter Criteria: Banks often have more stringent eligibility requirements, making it challenging for individuals with lower credit scores or limited credit history to qualify for favorable loan terms.
• Long Approval Process: Compared to dealerships or credit unions, banks might have a lengthier approval process due to their thorough evaluation of applicants' creditworthiness and financial history.
• Less Personalized Service: Banks might provide less personalized customer service compared to credit unions or dealerships, as they deal with a higher volume of customers.

What Is Motorcycle Financing?

Motorcycle financing is a process by which individuals can borrow money from a lender to purchase a motorcycle. It allows you to spread the cost of buying a motorcycle over time, making it more affordable for many people who might not have the full purchase amount upfront.

How Does Financing a Motorcycle Work?

Here's how motorcycle financing typically works:

• Loan Application: You apply for a motorcycle loan through a lender, such as a bank, credit union, dealership, online lender, or motorcycle manufacturers. The lender evaluates your creditworthiness, income, and other relevant factors to determine your eligibility and the terms of the loan.
• Loan Approval and Terms: The lender will offer you a loan with specific terms. The terms may vary depending on your credit score, income, down payment, and the lender's policies.
• Down Payment:  The lenders may require a down payment. A higher down payment can reduce the loan amount and the overall interest costs.
• Loan Repayment: You are required to make regular monthly payments to repay the loan over the agreed-upon term. These payments typically include both the principal amount borrowed and the interest charged by the lender. 

What Do I Need to Finance a Motorcycle?

To finance a motorcycle, you'll need to gather several documents and meet specific requirements to apply for a loan. With most secured motorcycle loans, lenders will look at your down payment, income, credit score, and the cost of the motorcycle.

• Down Payment: Some lenders may require a downpayment to reduce the loan amount and demonstrate your commitment.
• Income Details: i.e.Proof of income (pay stubs, tax returns, or bank statements) Employment details (employer's name, address, and contact information)
• Credit Score: Lenders will assess your creditworthiness, so be prepared for a credit check. A good credit score can help you qualify for better interest rates.
• Motorcycle Information: If you have already chosen the motorcycle you wish to purchase, the lender may ask for details such as the make, model, year, and price of the motorcycle.

For unsecured loans lenders will evaluate your overall financial situation, including your credit history,  income, and debt-to-income ratio, to determine your eligibility and the terms of the loan.

How Many Years Should You Finance a Motorcycle?

The duration of a motorcycle loan can vary based on individual financial circumstances, and the lender's terms. So, how long are motorcycle loans? An ideal motorcycle loan should have a life of 2-3 years and definitely no more than 5 years.Motorcycles tend to depreciate in value over time, and some models depreciate faster than others. A shorter loan term may allow you to pay off the motorcycle before its value significantly decreases.

Monthly Motorcycle Payment Example

We've seen motorcycle payments cost anywhere from $100 to $1,000 depending on what bike you get. A good rule of thumb is to put a 10-20 percent down payment on a motorcycle. So, if you're looking at a bike that costs $9,000 (and we do have bikes under 10k) your down payment should be between $900 and $1,800. If you're buying a $20,000 bike, expect to put between $2,000 and $4,000 down. 

If you’re unsure whether to make a higher or smaller payment, go with the smaller one and make extra payments toward the loan balance whenever you can.  Here’s a motorcycle loan calculator to let you play around with figures. Use this calculator to help you determine your motorcycle loan payment or your motorcycle purchase price. 

Alternatives to Buying a Motorbike on Finance

If you prefer not to buy a motorbike on finance or cannot qualify for a loan, there are several alternatives you can acquire a motorcycle without taking on debt. 

• Pay Cash: Consider saving and paying  with cash. It eliminates interest costs and allows you to negotiate a better deal when buying from a private seller or a dealership.
• Credit Card: This is  generally not recommended in light of high-interest rates. Use this option if you have a credit card with a low or zero-interest introductory period and can pay off the full balance before the promotional period ends, it might be an option.
• Home Equity Loan or Line of Credit (HELOC): If you own a home and have built up equity, you could consider a home equity loan or line of credit to fund the motorcycle purchase. This is a risky option, as these loans use your home as collateral.
• Lease or rent-to-own: This allows you to use the motorcycle for a specified period while making monthly payments, but you won't own the bike at the end of the lease. Rent-to-own agreements typically involve renting the motorcycle with an option to purchase it after a predetermined time.

Final Word: Explore Your Motorcycle Financing Options Today

It's essential to be realistic about your financial situation and ensure that financing a motorcycle fits comfortably within your budget. If you're uncertain or have any doubts, it might be wise to wait until you're in a more financially secure position. 

Remember to consider interest rates, loan terms, fees, and any potential promotional offers. Additionally, check your credit score and credit report beforehand to ensure you have an idea of what interest rates and loan amounts you may qualify for. 

It's always a good idea to shop around and compare offers from different lenders to find the best fit for your financial situation. If you're unsure about the process, don't hesitate to seek advice from a financial advisor or loan officer.