The Secrets of Motorcycle Loans

Owning a motorcycle is just one of the many dreams that the young have in their mind. They are willing to do just about anything to own the new swanky sports bike or the macho cruiser that gleams in the showroom. Motorcycle loans seem to be the easiest ticket to a motorcycle. But it can actually land you in a financial mess if you do not choose the correct loan program and fall prey to one of the high interest rate programs available nowadays. So what exactly is the right way to look for motorcycle loans?

Choose the Loan first

Before you select one of the costliest motorcycles for yourself, see what amount of motorcycle loan you qualify for. If the lender is only willing to lend you $9000 and you have chosen a motorcycle that costs $15000, then you are digging a big grave for yourself. So, the bottom line is to choose the loan before you choose the motorcycle for yourself.

Searching for the loan

You need to search around a bit before you get a loan with interest rate that you like. Credit institutions, banks etc are good places to start your hunt. If you directly go for a loan from within a motorcycle showroom, then you will get a loan that charges you a much higher interest rate than conventional motorcycle loan programs.

The Term of the loan

Lenders will always invite you to sign up for a loan program with a long term. Some loan programs go as long as 72 months. This seems like the most affordable and attractive proposition out there. It has low monthly payments, a fixed rate of interest etc. But there is a negative side to this. In such a long time period, you end up paying more than what your motorcycle is worth. You definitely do not want your debt to exceed the value of the motorcycle. Do you? Most borrowers find themselves in such a situation after sometime.

The Rule of 78 and Simple Interest

These are two methods by which the lender determines the rate of interest that he would pay. You need to look at this before you sign up for the loan program. Simple interest is always the better option from the borrower's point of view and vice a versa. In simple interest, the interest is calculated on the basis of the balance of the loan. You need to take care that the term is reasonably long but not too long. In the rule of 78 you only pay the interest for the first couple of years. So you have no equity on your vehicle. So you should always look for a lender who will give you simple interest on your loan. Some lenders also offer a mixture of the two. These loan programs have the rule of 78 in the first few months of the loan and then move on to simple interest.

Fixed and Variable Rate of Interest

The rate of interest can be tricky as well. It may be a fixed rate of interest or a variable one. The fixed one is the safer option. Please ask the lender beforehand itself whether there are any circumstances which may cause the rate of interest to jump. If there are any such circumstances, it is better if you know it beforehand itself. The more questions you ask the lender, the better you will feel about the whole program. Some lenders increase the rate of interest if the payment is delayed for a couple of months.