Motorcycle financing, is it right for you?
Most consumers prefer to get motorcycle financing rather than pay cash to purchase their new or used bike. But be careful of people who claim that you will save money by financing through a bank or credit union.
If you pay cash you are forgoing the opportunity of investing that cash to earn interest on it. If you can take your cash and invest it in a CD, or mutual fund you can likely earn a return that is greater than the rate on your motorcycle loan agreement. For example, if your interest rate is 6% APR on your loan agreement, if you take your cash and invest it at a rate of 6% or more you will come out better than if you just paid cash. Even if you were only able to get a 3% return on your cash you just lowered your interest rate from 6% to 3% since the interest you earn on your investment offsets some of the interest you pay. Sometime investing your cash is a much better alternative.
The advantage of getting motorcycle financing is that you will retain your cash and improve your monthly cash flow. Here are some tips to be sure you get the the best deal:
1. Interest rates:
Lenders are required to disclose the ANNUAL PERCENTAGE RATE ("APR"). The APR is the cost of your credit as a yearly rate. If you are comparing the costs from different lenders you will want to compare the APR.
2. Promotional rates:
Frequently you will see promotional interest rates that promise low APRs. Watch the fine print on these advertisements because you may be required:
- To have large down payment to qualify
- Pay the full suggest retail price for your new bike, rather than be able to negotiate a better deal.
- Repay the loan in a shorter period of time, such as 12 or 24 months.
- Purchase additional options such as extended warranties,
credit insurance, etc.
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