A motorcycle loan is a financing option that allows you to borrow money to purchase a new or used motorbike. These loans are similar to those for cars and boats, with a fixed interest rate and repayment terms. The most important factor in determining whether you qualify for a motorcycle loan is your credit score and income, with higher scores receiving more favorable financing. To maximize your eligibility, consider paying down outstanding debts and reviewing your credit report for errors that can be corrected before applying for a motorcycle loan.
The type of loan you choose will also impact your interest rate. Some lenders only offer secured motorcycle loans, which require you to put up collateral in case you are unable to repay the loan. Unsecured motorcycle loans are personal loans that do not require collateral, but they often come with higher interest rates to offset the lender’s risk of losing funds.
When shopping for a motorcycle loan, you can compare options from banks, credit unions, and online lenders. Look for a lender that offers preapproval before you start shopping, which will give you an idea of the loan amount and payment term you may qualify for. This will help you avoid making impulse purchases and ensure that the loan payments will fit within your budget.
You can also shop for a motorcycle loan at the dealership where you plan to purchase your bike, though this option tends to be more expensive. Dealerships with in-house lending will often charge a higher interest rate than banks or credit unions and may tack on additional fees for processing the loan.
To shop for a loan, you will typically need to provide your name, address, Social Security number and proof of income. Lenders will review this information to determine your debt-to-income (DTI) ratio and whether you are a good fit for the loan. If your income and debt load are acceptable, the lender will approve you for a loan amount that matches up with the price of the motorcycle you want to buy.
Before you commit to a lender, make sure the annual percentage rate (APR) fits within your budget. The APR is the total cost of the loan, including interest and fees, expressed as a percentage over the course of one year. To calculate your APR, multiply the loan amount by the term in years and divide by the loan’s annual interest rate.
While it can be tempting to fall in love with a beautiful motorcycle, remember that the monthly payments will add up quickly. Be sure to run the numbers using a loan calculator to make sure that you can comfortably afford the motorcycle and are not forgoing other priorities in your budget. A good rule of thumb is that your auto payments shouldn’t exceed 15% of your net income. If you find that the loan payments are too high, you might need to wait until your credit scores improve or find a different financing option.