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Motorcycle Loans January 2023

Motorcycle Loans
Gina Freeman (Pogol)
UpdatedDec 17, 2022
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    8 min read
Key Takeaways:
  • A motorcycle loan is any loan designed to finance a motorcycle.
  • Vehicle loans are secured by the bike you buy, while unsecured personal loans require no collateral.
  • Interest rates depend on your credit rating, loan amount and term.

Motorcycles are significantly cheaper than new cars, but you can still expect to shell out $7,000 to $25,000 when you buy one. If you need a motorcycle but can’t pay in cash, look into motorcycle loans. Many lenders offer a variety of secured and unsecured products to help you finance your purchase. 

What is a motorcycle loan?

A motorcycle loan is any financing used to purchase a motorcycle. Dealers often offer financing and you can also find loans from banks, credit unions and other lenders. 

In most cases, the bike serves as collateral for the loan, and the lender can repossess it if you don’t make your payments. Alternatively, you can choose an unsecured loan that requires no collateral. Each form of motorcycle financing has pros and cons, which you should consider before choosing a loan.

Secured vs unsecured financing

Motorcycle loans can be secured or unsecured. Secured loans involve collateral. Collateral is an asset that you pledge to the lender. If you fail to make your loan payments as agreed, the lender can take the collateral and sell it to recoup its losses. Collateral makes a loan less risky for lenders, so secured loans can be easier to get and they generally carry lower interest rates.

Unsecured financing requires no collateral. This means you don’t pledge an asset, and the lender can’t take your property if you don’t repay your loan. However, the lender can sue you and then collect a judgment if you don’t pay what you owe. Loans with no collateral are riskier for lenders, which makes them more expensive and harder to get.

Unsecured motorcycle loan example

LightStream demonstrates how an unsecured loan might work to purchase a motorcycle. Simply input a desired loan amount and LightStream displays a range of interest rates and monthly payments for terms of 36 to 84 months. You don’t put up the motorcycle as collateral. 

The interesting thing about LightStream’s loan is that for borrowers with the best credit scores, the interest rates are comparable to secured loans – rates for a $25k loan range from 5.99% for 36 months to 7.59% for 84 months. However, LightStream discloses that its rates can go as high as 12.49% for those with lower credit scores. 

LightStream’s loan is unsecured and can be used for almost any purpose except refinancing an existing LightStream loan or paying for post-secondary education. The minimum credit score is 660.

Secured motorcycle loan example

If you don’t easily qualify for an unsecured loan or you don’t like their interest rates, secured motorcycle loans might be a better option. This secured loan from Digital Federal Credit Union (DCU) gives you the option of borrowing up to 125% of the bike’s value. 

Advertised interest rates as of this writing are 6.75% for 36 months, 7% for 48 months and 7.5% for 60 months. However, the lender notes, “Rates are determined by your personal credit history, loan term, account relationship, and payment method.”

Choosing and comparing motorcycle loans

Motorcycle loans are fairly simple and comparing them isn’t difficult. Here’s the process you’ll go through:

  • Choose a loan amount and repayment term.
  • Estimate your credit score. You may find your FICO on a credit card statement or get it for free from Experian.com. 
  • Contact a few lenders for quotes.
  • Review your quotes and compare interest rates and loan fees. 
  • Prequalify with lenders to make sure you meet their guidelines.

First, you’ll want to settle on a loan amount and decide how long you need to pay it back. Note that extending your term lowers the monthly payment. However, loans with longer terms tend to have higher interest rates. In addition, longer terms increase your interest charges. 

Let your budget drive the purchase, not the other way around

Not sure how much you can afford to pay? Spend a few minutes playing with a loan calculator to see how different loan amounts, interest rates and repayment terms affect the monthly payment. That should help you decide whether it’s going to be a new top-of-the-line bike or a gently-used cheaper model.

Before contacting lenders, get your FICO score. Lenders need your loan amount, term and credit score to quote you an interest rate. Avoid free credit score providers that want a credit card number from you. There are plenty of sources that won’t ask for it. 

Comparison shopping for a loan can save you money

Next, request loan quotes from several lenders. Make sure that you meet their guidelines so you don’t waste your time. Note that some lenders offer loan prequalification when providing a quote. Just make sure they won’t perform a “hard” credit report inquiry until you’re serious about applying with them because it will drop your credit score a few points.

When you have your quotes, review them. If all loans you compare have the same term and loan amount, all you have to do is choose the loan with the lowest annual percentage rate, or APR. The APR is a little different from the advertised interest rate because it also includes any loan fees and other charges. APR’s purpose is to make comparing loans with different fees and interest rates easier. 

Finally, you’ll start the application process with your chosen lender. If approved, you could receive your loan proceeds in days. Lenders deposit unsecured loan proceeds into your account and you can use the funds to purchase your bike. For a secured loan, the lender typically transfers the proceeds directly to the seller. 

Where can you get a motorcycle loan?

Motorcycle loans come from many sources. Dealers often offer them, and you might get a great loan that way. However, don’t assume it’s the best deal. Take the dealer’s offer and compare it to a few other programs to make sure it’s competitive. Other sources include credit unions, banks, P2P lenders and online venders. 

How long are motorcycle loans?

Motorcycle loan terms typically range from three to seven years. You may be able to get a longer repayment term from some lenders. However, you should avoid a repayment term that exceeds the useful life of the bike or the number of years you expect to own it. 

What are motorcycle loan rates?

Secured motorcycle loan interest rates range from about 6% to approximately 18%. Unsecured personal loan rates can go as high as 36% for those with poor credit histories or other serious issues. 

To get a better interest rate, compare and shop aggressively. If you have time to work on your credit score, try to bring it up before buying – even 10 or 20 points more may put you into a better credit tier and qualify you for lower rates. If you have serious credit issues, bringing in a cosigner or coborrower can help, as can choosing a secured loan over an unsecured program.

Do you need good credit for a motorcycle loan?

To get a prime loan, you need good-to-excellent credit. That’s a minimum credit score of about 660 or higher. However, you may be able to borrow with a lower credit score, especially if it stems from a limited credit history and not from poor repayment habits. 

Other factors that can help offset a low credit score include excellent, stable income, a low debt-to-income ratio, and choosing a secured loan. Adding a coborrower or cosigner may also help you qualify for financing.

How to apply for a motorcycle loan

Many personal loan providers and vehicle lenders let you apply online and get a loan decision quickly. You answer a few questions about your employment and income, authorize a credit report inquiry, and provide personal information and your banking details. You can also apply the traditional way, completing your application in person or by phone. 

Most underwriting today is performed by software that can supply a preliminary decision in minutes. Next, you provide any documents the lender requests to finalize your approval – examples might include a recent paystub and bank statement. For an unsecured loan, you’ll give the lender your bank routing information and account number to receive your money. For a secured loan, the lender issues a cashier’s check to the bike seller or completes an electronic transfer. 

Motorcycle loan alternatives

Motorcycle loans are not the only method for financing a bike, and they may not be the best alternative for you. Here are a few options that might be better for your situation:

  • If you own your home, you may have access to very cheap credit – home equity loans and lines of credit (HELOCs). Note, however, that if you take 30 years to pay off the loan, you’ll pay an awful lot of interest on the amount you borrowed. Pay it off quickly instead to minimize interest expense. 
  • If you qualify for a zero-interest credit card and can pay off a bike purchase quickly, you might pay no interest at all. Many offer up to 21 months interest-free. Make sure the bike is a qualifying purchase.
  • If you don’t need the motorcycle right away, consider saving and paying cash – perhaps by taking on a side gig until you have enough to buy the bike. That’s often the best solution in non-emergency situations.

Estimate monthly payments on a motorcycle loan

It’s easy to estimate motorcycle loan payments with a loan calculator. To see your loan payment based on a specific loan amount, choose to “calculate for payment.” Input your loan amount, term in months and loan amount to see potential monthly payments. You can play around with different interest rates and loan terms to see how they affect your monthly cost.

Alternatively, you can decide what payment you want and work backwards from there by “calculating for price.” Enter the maximum monthly payment you want to make, the interest rate and loan term, and the calculator will return a maximum loan amount.

Motorcycle loans can help you meet transportation needs quickly, and there are many ways to finance a motorcycle purchase. The right option for you minimizes your costs and provides an affordable payment.