Before You Get A Motorcycle Loan Consider These Questions

In the world of motorcycle buying many motorcycle buyers strictly focus on negotiating the best front end price on the motorcycle and totally ignore the motorcycle financing process. This is not a good decision since the average motorcycle buyer will pay for their loan over the next 48-60 months.

As a result of making the wrong decision, many motorcycle buyers find out later that they have been placed into a motorcycle loan that is not the best financial situation for them. The goal of this article is to provide some key questions that you as a motorcycle buyer should consider before getting into a motorcycle financing arrangement.

1. What is the best type of motorcycle loan?

There are essentially two types of motorcycle loans.

• Installment Loans – A motorcycle installment loan is a formal contract between the buyer and motorcycle lender, which basically states that the buyer will make a fixed payment for a specified term at a fixed interest rate. At the end of the term the loan will be paid off.

On the average, installment loans typically have less fees and more favorable terms for motorcycle buyers. One note about installment loans that you should be aware of is that there are two types.

• Simple interest installment loan

• Pre-computed installment loan

Of these two types of installment loans you should only agree to enter a simple interest installment loan because the pre-computed loans require you to pay off more interest in the early part of the loan versus spreading it out evenly. This can have a very negative impact on you if you select to sell your motorcycle in the first 30 months.

• Private Label Credit Card - Private label credit card loans work very similar to the standard credit card you may already have in your wallet. These loans have become quite popular in recent years with manufacturers such as Yamaha, Honda, Suzuki, Polaris and Honda offering these loans through dealerships.

These credit cards loans are typically offered with a short term promotion so payments and interest rates normally increase. As a result, if you are planning on owing your motorcycle for a while this is probably not the best type of motorcycle loan for you.

However, if you are good with managing your money and are planning on paying off your bike before the short promotion period is over, these credit card loans can offer some value since the promotion rate can be low during the promotion period.

Overall when considering the characteristics of the above two type of loans an installment loan is typically better for most motorcycle buyers. The simple reason being that installment loans offer fixed interest rates and ensure that the loan will be paid off at the end of the term.

2. What is the best term for me on my motorcycle loans?

Some lenders try to push buyers into motorcycle loans for extended terms just so the buyer has a low payment. Today, motorcycle loans are going all the way up to 84 months and some custom cruisers are going as high as 96 months.

Generally the best policy in selecting a term is to try to find a balance between paying your bike off as fast as possible while having a payment you can afford. If you can find this balance you will probably have a positive finance experience.

3. Where is the best place to get a motorcycle loan?

Motorcycle loans can be found through a variety of sources to include motorcycle dealers, your local bank or credit union, and even online.

The key to ensuring you get a motorcycle loan with the best interest rate is to shop lenders. If you are thinking of getting a motorcycle loan through a dealer make sure you bring competitive quotes from other outside motorcycle lenders to ensure you get a competitive interest rate and terms.

4. Does the motorcycle lender require full coverage motorcycle insurance?

With insurance on some sport bikes pushing $3,000-$4,000 a year you may be thinking that you can get by with minimum liability insurance only. While this may be an option, you should check with your lender first. Some lenders strictly require full coverage insurance to be purchased while others have more lenient policies that allows you to get a loan with only liability insurance.

Nonetheless, if you do decide to get only liability insurance, beware that you are leaving yourself exposed.

5. Are there registration or administrative fees with the loan?

Many banks will offer you a great interest rate, but will then tack on hundreds of dollars in administrative fees. Watch out for the extra fees that get tacked onto your bike loan. Read before you sign any document.

6. Is the bike loan a cross collateralized loans:

A cross collateralized loan is one which the lender in the event of default has not only the right to the asset (the motorcycle), but also has access to your other assets, such as your house, car or other items. Credit unions are known to have such loans.

In the end, by asking questions and probing lenders motorcycle buyers can help themselves out a lot with making a good financial decision.