Always dreamed of owning a motorcycle, but never been able to pull together the cash to make that dream a reality? Recently bought a hog and wondering if the rate you got was reasonable? Whatever you're looking for, we're here to give you all the answers to your questions about financing and getting a good rate on your motorcycle loan! (Also, does calling it a hog make us sound cool? Please don't ruin this for us.)
While buying a motorcycle can be less of an investment than buying a new car, it can still be a significant purchase. New Harley Davidsons start at $10,000, but easily climb into the $20,000 range. So if you really want to get on the open road, but don’t quite have the money, a motorcycle loan might be your answer.
Here's everything you need to know about motorcycle loans and financing rates
The Three Ways to Finance Your Motorcycle
If you don’t have the money in your bank account to buy the motorcycle you’ve been eyeing at the local dealership, there are three different options for financing:
Manufacturer Financing
Some motorcycle companies, such as Harley Davidson and BMW, offer financing. And there are some pros to manufacturer financing:
You can get financing on both new and used inventory.
You can add necessary gear and accessories to the loan amount, such as helmets and protective gear.
It's convenient – you can get your motorcycle and financing set up in one day with little hassle.
Dealers sometimes run specials to encourage sales, so if you have good timing you may be able to get a nice rebate or decent APR on your new chopper.
While there are some good benefits to manufacturer financing, there are also some negatives. Here are the cons to this type of financing:
Dealerships have notoriously high APRs. It is important to shop around beforehand to know if you are getting a good deal or not.
There are sometimes limitations on what you can finance. Not all models are eligible for financing, and oftentimes the advertised low APRs only apply to certain motorcycles.
Manufacturer loans are secured. This means if you fall behind on payments, they can take your motorcycle as collateral.
Personal Loan
It is possible to secure financing through a personal loan. A personal loan is an unsecured loan that you can take out through a bank, credit union, or an online lender. Here are the pros of using a personal loan to finance a motorcycle:
These loans are unsecured, meaning that should you default, your motorcycle will not be taken as collateral.
There are often no origination or application fees.
There is often no prepayment penalty if you pay back early.
Securing a personal loan can often be a bit more difficult because it is unsecured. Here are some of the cons:
You need to be a member if you're financing through a credit union (credit unions often have the best rates for personal loans).
You must have excellent credit to be eligible.
Rates can be high, as they are unsecured.
You may be required to apply in person.
A personal loan may be a good option for some, but it does require a great credit score and strong credit history.
Motorcycle Loan
The third option for financing a motorcycle is to get a motorcycle loan. Motorcycle loans are offered through banks, credit unions, and some online lenders. While similar to auto loans, they are not interchangeable and you may find that the lender financing your car does not offer motorcycle loans.
Motorcycle loans are your best bet to find a lower rate, but this is dictated largely by your credit score and financial history. Additionally, there are often limitations on these loans (for instance, you may not be allowed to buy a used motorcycle, only a new bike). Since motorcycle loans are usually the best bet for getting a good rate, let’s explore them a bit more.
Are Motorcycle Loans Different than Car Loans?
With both motorcycle and car loans, you are making payments on a vehicle that will act as collateral in case you default on the loan. They both have a similar application process, and the rate for both types of loans are largely dependent on your credit score and financial history. The main difference between these types of loans are the rates and availability.
Why Do Motorcycle Loans Have a Higher APR than Traditional Auto Loans?
Motorcycle loans tend to have a higher APR for a number of reasons. First off, they are considered recreational vehicles, while cars are considered to be more of a necessity. Motorcycles require more repairs and the motorcycle depreciation rate is higher than a car depreciation rate. Motorcycle crash rates are also higher. All of these factors add up and make for a higher risk loan, therefore lenders charge a higher APR.
What are the Requirements for a Motorcycle Loan
Requirements for a motorcycle loan are similar to requirements for an auto loan. The lender will look at the following information when choosing whether or not to provide financing:
Credit Score
Do you have a good credit score? Your credit score is especially important when it comes to financing a motorcycle. Because it is a riskier loan, there is a higher threshold of financial stability. According to Equifax, the following credit tier characterize credit scores:
800 to 850: Excellent credit
740 to 799: Very good credit
670 to 739: Good credit
580 to 669: Fair credit
300 to 579: Poor credit
To secure a motorcycle loan, you will need a good credit score (670 or above), but the best rates will be reserved for those with very good to excellent credit (740 or above).
Credit History
Have you had other loans, such as an auto loan or a mortgage? Do you make on time payments? Do you have a history of repossession or bankruptcy? Lenders will ask all of these questions when reviewing your credit history to determine whether or not you are a high risk candidate for a motorcycle loan.
Debt-to-Income Ratio
Do you have a high debt-to-income ratio? Mortgages, rents, auto loans, and other personal loans are all considered debts. If the ratio of your debts to your income is high, you are a less desirable candidate for a motorcycle loan. If your debt-to-income ratio is low, this means you are more likely to make full, on-time payments and are therefore a more desirable loan candidate.
Down Payment
How much of your own money are you able to put down on your motorcycle? If you are able to put down a higher payment up front, it shows the lender that you are a serious applicant and more financially stable than someone who does not have any money for a down payment.
Condition of the Motorcycle
Is the motorcycle new or is it used? If it is new, it is more reliable with less risk of it breaking down. That being said, new motorcycles tend to be much more expensive. The lenders will look at all of this information when determining a rate.
Price and Value of the Motorcycle
How much are you paying for the motorcycle, and how much is it worth? The price you are paying compared to the value found on Kelley Blue Book will tell the lender whether or not you are getting a good deal on your motorcycle. This will also factor into the rate of your motorcycle loan.
What is a Good Rate for a Motorcycle Loan
Rates for motorcycle loans vary greatly based on your personal situation. If you have excellent credit, a strong financial history, and can put down an up front payment, you can find rates as low as 3.5% APR. It is important to remember that what is a “good” rate for you might be different than what is considered a “good” rate for someone else. The high risk associated with motorcycles compounded with less than perfect credit can drive your APR up pretty fast.
And if you're not happy with your rate, we can help. At Auto Approve, we're committed to finding you the best rate possible for your motorcycle loan. We work as your advocate to track down and compare all available rates and terms to ensure that you are getting the most bang for your buck.
Can I Refinance a Motorcycle Loan?
Yes! If your credit score has improved since your initial loan, interest rates have gone down, or you just got a bad rate on a manufacturer loan, you can refinance to more favorable terms. If you are wondering how to refinance a motorcycle, Auto Approve can help make it happen.
What Not to Do
If you cannot get approved for a motorcycle loan, personal loan, or manufacturer financing, you should wait to purchase your new motorcycle. Avoid the temptation to buy the bike with your credit card. If your credit limit is high enough, you might think this is an easy option, but the high interest rates and penalties can have disastrous results if you fall behind. It’s best to work on building your credit and reapplying when your situation has improved.
Financing a motorcycle has stricter requirements than financing a car, but at Auto Approve we can help you find the best motorcycle loan rates available.
If you're interested in refinancing your motorcycle loan, contact us today to find your best rate!