How to Avoid Motorcycle Financing Mistakes Before Applying For a Good or Bad Credit Motorcycle Loan!
Are you looking for how to get the best possible financing on a new or used motorcycle? Or have you been through the process of motorcycle financing and found the options so confusing, you’re not sure you got the best possible deal?
In the excitement of choosing the bike you want, it’s entirely possible your focus has not been on the motorcycle financing process. It’s easy to become overwhelmed when there are so many new and used motorcycles on the market today.
As a result, many motorcycle buyers make the same mistakes when looking for a motorcycle loan. Whether you need a good or bad credit motorcycle loan, avoiding the following commonly made motorcycle financing mistakes will help you find the best possible deal:
Mistake 1: Being Afraid To Ask Questions
During the process of motorcycle financing, one of the most common mistakes is not asking enough of the right questions. First, you need to understand that you cannot make an informed decision, without the right information.
Dealers have several loan products available to you and they want to help you make the best financial decision. Ask questions, and be aware that motorcycle financing isn’t the same as with a car. The following are critical questions you should ask during the motorcycle financing process:
- Is the financing by means of a revolving private-label credit card or a standard fixed installment loan?
- Can the interest rate on this motorcycle loan change or is it fixed?
- What is the lowest interest rate? What is the maximum interest rate?
- For bad credit motorcycle loans, ask if the lender specializes in bad credit approvals?
- What are the late fees for a payment that is 30 days late? Can late payments cause the interest rate to increase?
- Is there a prepayment penalty?
- How long is the term on the motorcycle loan? Will the loan be paid off at the end of the term?
- Can the lender call the loan due in full at any time? Note: Some credit unions can do this.
- What happens if a payment is 60 days late?
- Does the loan use simple interest or Rule of 78? (Stick with simple interest it does not penalize you if the loan is paid off early like Rule of 78.)
- Is there a down payment requirement?
- Does the lender require full coverage motorcycle insurance?
- Are there any additional document fees that may be charged?
Mistake 2: Shopping for a motorcycle prior to shopping for a motorcycle loan
With the power of internet, it is very easy to research and read reviews on motorcycles. However, the number one complaint dealers have is that new motorcycle buyers spend too much time getting their mind set on a bike they cannot afford. It makes little sense to shop for a motorcycle before shopping for a motorcycle loan.
Shopping for a loan is highly important because the number of lenders in the market is very fragmented. The market condition worsened after the recession of 2008 and has resulted in wide differences in how lenders score credit. This difference in credit scoring can result in wide variations on the approved interest rate and the amount of the loan approval.
For instance, one lender may approve you for $8,000 at an interest rate of 5.95%, and another lender may approve you for $6,500 at an interest rate of 6.99%. Without shopping for a loan before deciding on a motorcycle, you might find that you have chosen a bike you cannot afford.
Mistake 3: Making the wrong choice between taking a dealer rebate or a low interest rate financing promotion.
Manufacturers within the motorcycle industry frequently offer cash rebates or low interest rate financing. For promotions that offer you either a rebate or a low interest rate you need to be prepared to make a decision.
It is important to do your homework before entering the dealer. You will want to use a motorcycle loan calculator to determine the difference in interest you will pay if you take the low interest rate promotion or you choose the offered rebate instead.
For instance, if your motorcycle loan is $10,000 and the low interest rate promotion is 2.99% for 60 months, you will pay $778.55 for interest over the five years of your loan. On the other hand, if you take the cash rebate and not the 2.99% interest rate promotion, you will have to finance your motorcycle with a higher interest rate. Assume it’s an interest rate of 7.99% for 60 months. Under this scenario you will pay $2,162.97 in interest. The difference between the 2.99% and 7.99% interest rate is $1,384.42 in extra interest you will pay.
If the manufacturer is offering you 2.99% financing or $500 cash rebate, your answer is clear. If you take the $500, then you’ll be financing at a 7.99% interest rate, which costs you an extra $1,384.42 in interest. In this scenario you are better off taking the 2.99% financing over the $500 rebate.
You need to consider how long you will actually keep your motorcycle. In the above example it’s assumed you would keep your motorcycle for the full 60 months. But you might actually trade it in after two years, in which case you would only pay 2 years of interest. If this was the situation you would need to calculate that 2 years of interest and determine if it is more or less than the $500 rebate.
Mistake 4: Letting negative equity roll into your new loan
Being upside down (negative equity) means you owe more on your loan then your motorcycle is worth. For instance, if your motorcycle is worth $6,000, but you owe $7000 on your loan you have $1,000 in negative equity. Many motorcycle buyers find out about negative equity when looking to trade in their current bike to purchase a new one.
If you are trading in your used motorcycle, you might be tempted to roll in negative equity into your new loan. It’s important to that you understand you will be paying interest on this negative equity for the term of your new loan. Furthermore, if your new loan is at a higher interest rate, you are costing yourself a lot of money in interest and putting yourself in a worse financial position.
The bottom line – if you are in a negative equity situation, you should ask yourself if you are purchasing a motorcycle you can’t afford.
Mistake 5: Not taking the shortest loan term
Motorcycles depreciate very quickly. When your motorcycle depreciates faster than you pay down your loan principle, then you will be upside down with negative equity. The longer you stretch out your loan, the higher risk you have with becoming upside down. Paying off your loan in the shortest amount of time, helps you gain more equity in your bike.
While shorter term loans are recommended, it does not mean you should never consider longer term loans. Some lenders might offer a low promotion rate only on longer term loans. This can be to your advantage, if the loan does not have a prepayment penalty.
Here’s how to work a promotion and term to your advantage. Assume you are buying a motorcycle for $10,000 and you want to pay it off in 36 months, but the lender only offers a 5.99% interest rate on a 36 month loan. However, if you take a 60 month loan the lender is offering a promotion for a 2.99% interest rate with no prepayment penalty.
Your payment on the 2.99% is $179.64, and the payment on the 5.99% loan is $304.17. If you take the 2.99% loan for 60 months, and make the payment of $290.77 your motorcycle will be paid off in 36 months with a payment slightly lower than the 5.99% rate. Best of all, by applying this strategy you save yourself $482.62 in interest, but taking advantage of the lender’s 2.99% low interest rate promotion.
Mistake 6: Negotiating on payment instead of the motorcycle price
Although you should know exactly the motorcycle loan payment you can afford, don’t offer this figure to a salesperson. Your negotiation needs to be strictly focused on getting the best price for the motorcycle or ATV you want, not on the monthly payment you can afford.
By volunteering your monthly payment budget, it tells the salesperson exactly how much room is available to sell you a motorcycle or ATV at a higher price or with more add-on products you might not need. In order to maximize your negotiation power, its best to keep your monthly payment budget to yourself.
Once you negotiate the best “out the door price”, you can have the monthly payment calculated and see if it fits in your budget.
Mistake 7: Borrowing too much
It’s common in the motorcycle industry to be approved for a loan that is more than the bike you are buying. But just because a lender approves you for a $15,000 motorcycle loan, that does not mean you should borrow that amount.
Borrowing too much money can put your financial future at risk especially since motorcycles depreciate very fast. You really need to evaluate your budget and make sure you can afford the payment that is presented with your loan.
You also need to make sure that your payment is fixed and cannot increase. Most installment motorcycle loans have fixed payments for the entire term of the loan. On the other hand, private label credit card motorcycle loans normally do not have a fixed payment. These credit cards are normally offered by Yamaha, Kawasaki, and Polaris through Capital One Bank and the payment and interest rate can increase after the promotional term.
Mistake 8: Not Getting Your Credit in Line
Many applicants are looking for bad credit motorcycle loans, but getting approved with poor credit can be challenging. It is important that bad credit applicants work with lenders that specialize in helping people with past credit problems.
More importantly, it is critical bad credit applicants get their credit inline. This does not always mean you need full credit repair. There are simple things that can be done which can significantly help approval.
- Check Your Credit: If you have bad credit you should check your credit report for errors. Since your credit report has been touched by many creditors there is a high chance you could have errors on your credit report. Check each account, including the payment history, current balance, notes, and the status of the account. If you find errors contact the credit bureau and have each error fixed immediately.
- Verify Address Information: Make sure the address on your motorcycle finance application matches the address on your credit report. Sometimes lenders use automated scoring which can automatically decline your application if the addresses do not match.
- Pay down your credit cards: Many lenders’ scoring models look at the amount you owe on your credit cards compared to the credit card limit. Paying down revolving credit cards can have a big impact on getting approved with bad credit.
- Credit Bureaus: Contact the credit bureaus and put a personal statement on your credit report stating why you had credit issues in the past.
- Don’t mass submit loan applications. Many motorcycle buyers submit multiple loan applications with many different lenders, which can hurt their credit score further. If you have bad credit, it’s important to start with a lender that specialized in bad credit. Submitting too many applications in a short time can force automatic declines with many lenders.
Overall, correcting errors on your credit report and following the above steps can have a big impact on helping you get approved with bad credit.
Motorcycle buying is an exciting experience, so don’t let lender’s options confuse you. Use this site to find straightforward motorcycle financing information that you can trust. The goal of this site is to simplify the process of getting a motorcycle loan. We cover a variety of general topics as well as topics like after bankruptcy, guaranteed, and bad credit motorcycle loans.