A Complete Guide to Buying a Motorcycle: Loans and More
The lure of the open road can be hard to resist, and for many men and women nothing beats the fun and excitement of traveling the world on a finely tuned motorcycle. Whether it's cruising the highways on a Triumph Rocket X or tearing up the trails on a KTM 350 EXC, there's an indescribable magic that only happens when you're seeing the world from the back of a bike. But there's a lot to consider before you can grab yourself a bit of that motorcycle magic, and you need to think carefully about whether or not you are ready to join the ranks of motorbike enthusiasts.
A Short Quiz for Buyers
Buying a motorcycle is a major commitment, both personally and financially, and you need to be sure that you understand just what you're getting into before you head out to the dealerships or start making offers on second hand bikes. Begin by asking yourself a few specific questions.
- Do you really want or need a motorcycle?
- How much can you afford to spend?
- Can you afford the additional costs of ownership and maintainence?
- What type should you buy?
- Should you buy a new or used model?
- How will you finance your purchase?
Considering Wants vs Needs
A motorcycle is a unique form of transportation. While it may seem romantic to don your leather and head out on the highway, riding a bike isn't for everyone. Before you buy, be sure that it's more than just a passing fancy. Consider the risks and responsibilities of riding, and ask yourself if you are truly up for the challenge. Take a safety course, and talk with other motorcyclists to get a feel for the real day to day operation and upkeep of a bike. Remember, a motorcycle is a major investment that deserves careful consideration before you commit to a purchase.
Figuring Out What You Can Afford
While motorcycles are typically less expensive than cars or trucks, they're still a significant investment. Before you start shopping for bikes and applying for loans you need to figure out what you can safely afford. Use the following steps to help you arrive at a workable budget for your new bike.
- Add up your total cash assets.
- Figure out your monthly income after taxes.
- Add up your total monthly expenses.
- Subtract your expenses from your income to determine how much you can afford to pay per month on your motorcycle loan. Be sure to allow a healthy safety margin here, so as not to strain your regular household budget. Remember there will be additional costs to operating and maintaining your motorcycle, and these will also impact the overall cost of your bike.
- Multiply that amount by the number of months you will need to pay off your loan. Keep in mind that motorcycles tend to depreciate in value rather quickly, and most financing options are restricted to 36 to 60 months.
- Assign any of your cash assets as a down payment. The larger your down payment the more manageable your loan. A larger down payment also increases your chances of qualifying for financing.
Additional Costs of Ownership
Motorcycles are often seen as an inexpensive alternative to other forms of transportation, and to a large degree they fulfill that promise. Most models, barring custom jobs and high end cruisers or touring bikes, do sport a lower sticker price than most cars or trucks. However, there are a fair number of secondary costs associated with owning and maintaining a motorcycle, and before you take the plunge you should be aware of those costs and how they can effect your bottom line.
- The Motorcycle – Obviously, the cost of your bike is hardly secondary, but it bears repeating that motorcycle prices can, and do, vary greatly. A good starter bike, say a standard or dual sport model, can run anywhere from $5000 to $12,000; and a custom bike or high ended cruiser can cost as much as $30,000. Certain models will dictate higher insurance rates, and may need a higher level of maintenance. These costs add up, so it is important to choose a model that fits in with your budget.
- Insurance – There is a myth that motorcycles are cheaper to insure than cars or trucks. That may be the case if you are an experienced rider with a spotless driving record, but it does not hold true all of the time. A number of factors come into play when you insure a motorcycle, beyond your driving record and the cost of the bike itself. Some models have higher theft rates, and so will be more expensive to insure. Other models, like sport bikes and custom jobs, may be seen as having a higher risk profile which can cause insurance rates to spike. Naturally, you will want to shop around until you find the best insurance policy at the best price, but don't assume that just because you are buying a motorcycle you will be guaranteed cheap insurance.
- Maintenance – Motorcycles require a great deal of regular maintenance, much more than a car or a truck. Over time, the cost of that regular maintenance can definitely add up. For example, motorcycle tires typically need to be replaced every 3000 miles, and that can run anywhere from $400 to $800 for the set. Figure in spark plugs, belts, chains, and valve replacements, and you can expect to spend between $1000 and $1500 a year on maintenance costs alone.
- Gear – Motorcycle helmets, jackets, gloves and boots should be standard issue for all riders. If you drop your bike, and sooner or later you will, you'll be glad you invested in some high quality safety gear. Motorcycle gear can be expensive, and this is not an area where you will want to cut corners. For example, a good helmet will cost you anywhere from $200 to $800. High -abrasion leather jackets and gloves are equally expensive. If you are a first time rider, or are gearing up after a long absence from the road, you can expect to spend close to $1500 just getting yourself outfitted in suitable motorcycle gear.
Which Model is Right for You?
Experienced riders know that buying a motorcycle begins with choosing the model that is right for you and the type of riding you want to do. This is a particularly important point, especially if you are a novice rider. There are safety issues to consider, as well as the overall enjoyment factor. If you buy a motorcycle that you can't handle, or that you simply don't enjoy riding, you will have wasted a fair amount of money. While motorcycles are typically less expensive than cars or trucks, they are still a major investment. If you choose a model that doesn't suit your needs or experience level, you can easily end up paying off a bike that is collecting dust in your garage or struggling to recoup your investment by selling it on the second hand market.
Before you think about purchasing any motorcycle, consider what kind of riding you will be doing. Are you looking for a sport bike to take on the back roads and rough trails, or are you looking for a motorcycle that will serve as your primary means of transportation? You should also consider how much experience you have handling a bike. Are you a beginner with limited experience riding a motorcycle, or are you an old hand at tackling the world on two wheels? These questions will lead you to the type of motorcycle that is best suited to your needs and experience level, and will help you avoid a purchase that you may ultimately regret.
There are six basic types of motorcycles to consider, and each delivers a different riding experience. A brief overview should help you narrow down your choices, however we advise thoroughly researching your choice before making any final purchase.
- Standard – An all purpose introductory model. Typical examples include the Honda 599 and the Suzuki SV650. Standard models are relatively lightweight, and their overall design makes them easier to handle while giving the rider a reassuring sense of control. Standard model bikes are hard to beat for fuel efficiency, with some makes getting more than 60 MPG. Standard models are generally a good fit for riders with limited experience, though the heightened horsepower on some models can be intimidating for first timers. Purchased new, standard models can run anywhere from $7000 to $15,000, making them an attractive choice for novice motorbike enthusiasts.
- Sport Bikes – Sport bikes are relatively lightweight, and are built for speed and easy handling. However, these are high performance bikes, and as such are not really a good fit for novice riders. They are also costly to maintain and insure. Popular models include the Kawasaki Ninja ZX-14R, the Honda CBR1000RR, and the BMW HP4. Sport bikes make up a large part of the motorcycle market, with prices ranging anywhere from $12,000 to $30,000, but they can be a questionable investment if you are a first time buyer or are not fully committed to the motorcycle lifestyle.
- Dual Sport – Dual sport models are built for both on and off road adventuring, and their versatility make them a good choice for first time riders. You can hit the trails on the weekend and ride to work on Monday. Dual sports are lightweight and easy to master and maintain. They are also relatively inexpensive to buy and insure, and most models are surprisingly fuel efficient. Dual sport bikes, particularly the Honda CRF250L and the Yamaha WR250R, are great choices for city travel and short term commuting and are a good fit for riders with limited to moderate experience.
- Cruiser – The most recognizable example of a classic cruiser is the Harley-Davidson Softail. Cruisers are built for comfort, and typically deliver a relaxed ride that is well suited for longer hauls. Their low slung seats make it easier to get both feet on the ground, and their low center of gravity helps to offset the heavy weight of the bike (an important consideration for less muscular riders). However, the long low build of most cruisers can make maneuvering a challenge for less experienced riders. Cruisers are a good fit for city and highway travel, and while they're not as fuel efficient as standard models most deliver upwards of 55 to 60 MPG.
- Touring Bikes – Touring bikes are designed for long rides on the open road, and there is a distinct emphasis on comfort as well as power. They are heavier and more expensive than other bikes, and are not the best choice for novice riders. They are powerful machines that demand respect and a fair amount of experience to handle. Popular touring bikes include the Kawasaki Vulcan Voyager, the Victory Cross Country, and the classic Harley-Davidson Electra Glide. Touring motorcycles are not as fuel efficient as other models, and their high cost and advanced features make them more expensive to insure and maintain.
- Scooters – Scooters are an extremely practical and affordable alternative to the fully fledged motorbike. However, the skills needed to expertly handle a motorcycle are not the same as those that can be learned from owning and operating a scooter. If buying a motorcycle is your ultimate goal, a scooter may not be the best place to start as the skills you will learn do not necessarily translate to a proper motorcycle. That being said, scooters are great for urban travel, and are fairly easy to handle. They are extremely fuel efficient (with some models getting as much as 90 miles to the gallon) and are inexpensive to maintain and insure. However, they can be less stable at higher speeds and are unsuitable for busy highways and extended trips.
Choosing the right model is one of the most important decisions you will make when shopping for a bike. The wrong choice can lead to trouble down the line. As a general rule, novice riders should avoid bikes over 500 pounds and with a native horsepower of more than 70. For beginning riders, or those with limited experience, standard and dual sport bikes are probably your best bet. Experienced riders will have a better idea of what they can handle, and should have no trouble finding the bike of their dreams.
Buying New vs Used Bikes
Now that you have a better idea of the type you're interested in, it's time to think about whether or not you want to buy a new or used model. Each option has its own distinct advantages and disadvantages, and both should be considered carefully.
Advantages of Buying New
- Vehicle History – When buying new you can be confident that there is no history of accidents or damage.
- Low Mileage – A new bike should have little, or no, miles on it.
- Latest Technology – New technology is making bikes safer, more reliable, and easier to ride. New models feature the latest in technological upgrades.
- Warranty – It will be under warranty, typically for 1 to 2 years.
Disadvantages of Buying New
- Cost – Naturally, most new bikes will be more expensive than similar used models.
- Insurance – New models are more expensive to insure, particularly while your loan is in effect.
- Depreciation – Like any new vehicle, motorcycles begin to depreciate in value the moment you ride off the lot. They also depreciate faster than cars or trucks, so your new bike's resale value will drop considerably in the first year.
Advantages of Buying Used
- Cost – Used motorcycles, barring vintage or collectable models, are significantly less expensive than new bikes.
- Insurance – As a general rule, used models are cheaper to insure than new. Again, many factors need to be considered when it comes to insurance, and this is not a hard and fast rule.
- Resale Value – They depreciate more quickly than cars or trucks. When you buy used, you have a better chance of recouping a larger part of your investment should you decide to resell down the road.
Disadvantages of Buying Used
- Cost (again) – While used motorcycles are typically less expensive than new models, it can be hard to know what a fair asking price should be. Before buying used, you should research the make and model to figure out its true market value. The Kelley Blue Book motorcycle reference guide can help you estimate the market value of most second hand bikes.
- Vehicle History – When buying a used motorcycle there's is always a question of condition, and how much abuse the bike may have suffered. If you are considering a used motorcycle, have it checked out by a reputable mechanic.
- Maintenance – Used motorcycles typically require more maintenance than new models and the upkeep can end up costing a fair amount of money. If you're a DIY enthusiast this may not be a major issue, but if you're not mechanically inclined it should be a consideration.
The decision to buy a new or used motorcycle rests entirely with you, and each has definite advantages and disadvantages. That being said, if you are a novice rider it sometimes make's better sense to buy a used motorcycle as a starter bike. Chances are you're going to drop the bike a few times as you get used to riding, and the cost of damage to a second hand bike will be easier to absorb. Moreover, if you find that the life of a motorcyclist is not for you, there's a better chance of recouping a larger portion of your initial investment should you decide to sell the bike.
The Difference Between Motorcycle & Auto Loans
When it comes to motorcycle loans, it is important to understand how they differ from standard auto loans. While there are some similarities (the importance of credit scores, personal assets, make, model, age of the vehicle, etc), there are some key differences that can significantly impact interest rates, as well as determine whether or not you will be approved for financing. As a general rule, lenders are more hesitant to underwrite a motorcycle than a standard automobile, and this can be attributed to a few key factors.
- Risk – Regardless of your skill set, motorcycles are more dangerous to operate than cars or trucks. Lenders understand this, and view motorcycle loans as high risk investments due to the dangers posed to both rider and vehicle. They are well aware that motorcycle riders are at a greater risk of not repaying due to injury or death, and potential damage to the vehicle reduces the value of the bike as collateral. Consequently, motorcycles carry higher interest rates than traditional auto loans.
- Recreation – Whether you are buying a sport bike for trail riding or a cruiser to commute to and from work, lenders consider all motorcycles to be recreational vehicles. They are considered luxury items, and lenders assume that buyers can afford to pay a higher interest rate. Even if you are buying a motorcycle as your primary means of transportation, you can expect to receive a higher interest rate than if you were applying for more traditional auto financing.
- Rarity – Finally, it comes down to basic economics. Due to the heightened risk factors associated with riding a motorcycle, many banks and credit unions simply do not offer motorcycle loans. It becomes a matter of supply and demand, and with fewer lenders offering financing those that do can charge higher interest rates.
All of these factors contribute to higher interest rates. If you decide to finance the purchase of a new, or even a used, motorcycle, you should be prepared to pay a higher interest rate than you would for a car or truck.
There are a few basic options when it comes to financing a motorcycle. As with any loan, terms and interest rates will be largely determined by your credit history, personal assets, and the amount of your down payment.
- Dealer Financing – Most dealerships offer financing for qualified customers. However, interest rates may be higher through a dealership than through an alternative lender, and it's always wise to investigate all of your options before agreeing to any loan. As with any financing, terms and interest rates will be set by the dealer according to your credit score, down payment, and the life of the loan.
- OEM (Original Equipment Manufacturers) Financing – Some manufacturers (Harley-Davidson, Yamaha, Suzuki, etc) offer direct financing on NEW models. Again, OEM financing may lead to higher interest rates, and approval will be largely dependent on your credit history and current financial status.
- Banks – Motorcycle loans may be rarer than traditional auto loans, but they are not impossible to find. While many local banks may be hesitant to underwrite a motorcycle, most national banks and some credit unions do offer financing opportunities for qualified buyers. Nationwide, SunTrust, and USAA are all prime examples of national banks offering competitive options for motorcycles and other recreational vehicles. For many buyers, this is perhaps the best option when looking to secure motorcycle financing.
- Online Lenders – There are a growing number of online lending companies that specialize in motorcycle and other recreational vehicle financing. There are also a growing number of lenders specializing in bad credit loans. However, as tempting as these lenders may be, you should be aware that interest rates from these lending companies tend to be disproportionately high, often twice that of more traditional lenders.
- Personal Loans – If your preferred bank or credit union does not offer loans specifically tailored for motorcycles, you may qualify for a personal loan if it can be supported by your current financial status and personal assets. That being said, a personal loan may require some form of collateral, and you should be careful what you are prepared to risk for the purchase of your motorcycle.
- Credit Cards – If you have a high enough line of credit on a credit card, you might consider purchasing your motorcycle with that credit card. This actually has some benefits, as you will avoid credit checks, loan applications, and any penalties for early repayment. However, you will be faced with steep interest rates, so tread carefully with this option.
Common Mistakes Buyers Make When Applying for Financing
Applying for financing requires careful consideration, and there are some pitfalls to avoid if you are going to find a plan that works for you. Unfortunately, in the excitement of shopping or a new bike, most buyers tend to make the same financing mistakes. Before you put pen to paper, and sign any agreement, consider the following common mistakes, and avoid them at all costs.
- Shopping for a Motorcycle Before You Shop for Your Loan – This is an all too common, and frankly understandable, mistake. However, you need to have some idea of how much money a lender is willing to advance you before you start shopping for a bike. There's no point getting your heart set on a $25,000 Harley-Davidson Cruiser when you may only qualify for a $10,000 loan. Of course, the type of motorcycle you purchase will greatly influence the particulars of your loan (terms, interest rates, etc), but you should be able to get a fair idea of how much money you would be eligible to borrow before you start shopping for a bike. Make it a point to talk with a few different lenders before you start test driving new bikes.
- Borrowing Too Much – It is important to understand how much motorcycle you can afford before you start shopping for a loan. This is an all too common mistake, and it leads to buyers getting saddled with motorcycle loans that quickly become hardships. Figure out your budget early in the buying process, and remember to allow for the additional costs of owning and operating a motorcycle which we discussed earlier.
- Dealer Promotions – It's easy to become overwhelmed when you're shopping for a new bike at a dealership. Quite often the salesperson will try to close the deal by offering you special financing options. Tread carefully here, and investigate the loan agreement thoroughly. Many of these promotions offer tantalizing low introductory rates, but after 12 or 24 months the interest rates skyrocket. You mind find you are better off working with an independent lender.
- Comparison Shopping – This is one of the biggest mistakes motorcycle buyers make, and it can cost plenty in the final analysis. When shopping for a motorcycle loan, always compare and contrast offers from a number of different lenders. Ideally, you should contact at least 3 or 4 different lenders before deciding on the best deal. Compare different types of lenders as well, including credit unions, banks, and independent lending companies.
- Knowing Your Credit Score – Your credit history plays a large part in determining whether or not you qualify for a loan, and what the terms and conditions of that loan might be. Unfortunately, many buyers neglect to check their credit scores before applying for a loan, and this puts them in a weakened condition when it comes to negotiating terms. Before applying for any loan, check your credit scores with the three major reporting agencies (Equifax, Experian, and TransUnion) and request your free credit score. Check your scores to make sure that the information is accurate, and consistent, across all three reports. If there are any mistakes, you should take steps to rectify them before you apply to any lenders.
- Long Term Loans – While it's tempting to choose a longer term loan in order to have a lower monthly payment, it can backfire when it comes to motorcycle financing. You will end up paying considerably more for the bike as interest rates mount up, and you will have less equity in the motorcycle should you decide to resell it. Remember, motorcycles depreciate in value relatively quickly, and it only takes a couple of years to find yourself paying on an upside down loan. An ideal motorcycle loan should have a life of 24 to 36 months, and definitely no more than 60 months.
Asking the Right Questions
When it comes time to apply for your loan, whether it's through a bank, credit union, or other lender, it is critical that you full understand the agreement before you sign any contracts. Naturally, in the excitement of buying a new bike it's easy to forget to ask some fairly important questions, and that can lead to debt that can quickly become unmanageable. Before you sign any agreement, be sure to ask the following questions:
- How long is the term? Remember, longer terms mean lower monthly payments, but can lead to an upside down loan.
- Is the interest rate fixed or variable? This is an important question, and the answer can have a significant affect on the shape of your loan. If your loan is variable and rates rise then the monthly payments may grow significantly.
- Does the loan follow the Rule of 78 or simple interest? Simple interest is always the better option. If your loan follows the Rule of 78, your initial monthly payments will only be applied to the interest on your loan, and it will be some time before you put a dent in the principle.
- Are there any penalties for early repayment?
- What are the penalties for late payments? These can include anything from penalty fees to an increase in interest rates.
- What kind of down payment is required to qualify for, or secure, the loan?
- Are you required to carry full coverage insurance on the motorcycle while the loan is active? As your new motorcycle will be used as collateral for the loan, the answer is almost always “yes”, particularly in the case of NEW motorcycles. However, when it comes to second hand bikes it's generally left to the lender's discretion.
- Are registration fees included in the loan?
- Are there any administrative fees associated with your application, and if so what are they?
These are all critical questions to ask when applying for a motorcycle loan, and they can help you avoid entering a loan agreement that you soon come to regret. Remember, before signing any contracts be certain that you fully understand the terms and conditions of your loan, as well as your specific responsibilities as a borrower. Do not hesitate to ask the loan officer to explain any part of the financing agreement that you do not fully understand, or that seems unnecessarily complicated.
Buying The Motorcycle of Your Dreams
Yes, the lure of the open road is hard to resist, but there's more to buying a motorcycle than simply picking a cool looking model out of a trade magazine. Think about the kinds of riding you will be doing, and the type of motorcycle that fits your needs and your experience level. Carefully consider what you can afford, and how you will finance your purchase. Take the time to research a number of different lending paths, until you find the lender and the loan that works for you and your current financial situation. Once you find a loan that you are comfortable with you'll be ready to finalize your purchase and start experiencing the magic that comes with seeing the world from the back of your new (or used) motorcycle.