If you’re in the market for a new motorcycle and have bad credit, don’t worry – you’re not alone. A large number of motorcycle owners have less-than-perfect credit scores.
However, that doesn’t mean you can’t get a loan to buy your dream bike. There are several ways to finance a motorcycle loan with bad credit, and we’ve listed seven of the best ones below.
So don’t let your poor credit score stop you from getting the bike you want – read on to find out how you can get the money you need.
With a bad credit score or low credit rating, you may still apply to a bank, credit union, online lender, motorcycle dealership, motorcycle manufacturer, personal loan or a Home Equity Line of Credit (HELOC). Each financial institution will look into your credit history and DTI (Debt to Income Ratio) and assess your overall stability before making an offer.
Table of contents
- What is a motorcycle loan?
- Is a motorcycle loan different from a car loan? (why and how are they different)
- What is a bad credit rating or a low credit score?
- Various options of getting a bad motorcycle loan or getting a motorcycle loan with a bad credit rating
- What if I still can’t get motorcycle financing
What is a motorcycle loan?
A motorcycle loan is a secured or unsecured loan used to purchase a motorcycle. Secured loans are backed by collateral; typically, the bike becomes the collateral, while unsecured loans are not backed by collateral.
Because secured loans have less risk for the lender, they usually have lower interest rates than unsecured loans.
A motorcycle loan usually has a higher interest rate than an auto or car loan because motorcycles are considered riskier. According to an AutoInsurance stat, the fatality rate in the United States per 100,000 registered vehicles was over 59% for motorcycles and just over 10% for passenger cars.
However, motorcycle loans are often shorter than auto loans, so the total interest you must pay may be less. When considering a motorcycle loan, compare offers from multiple lenders to find the best rate and terms.
Is a motorcycle loan different from a car loan? (why and how are they different)
Motorcycle and car loans may seem similar at first glance, but there are a few key ways in which they differ.
For one thing, motorcycle loans usually have higher interest rates than car loans. This is because motorcycle loans are riskier than car loans; since motorcycles are easier to steal and more prone to accidents, lenders see them as a greater risk.
As a result, borrowers who take out motorcycle loans can expect to pay more in interest over the life of the loan. Additionally, motorcycle loan options are often more limited than car loan options. While many lenders will finance the purchase of a new or used car, fewer are willing to finance the purchase of a motorcycle.
For borrowers looking to finance the purchase of a motorcycle, it is essential to shop around to find a lender willing to provide the desired loan terms.
What is a bad credit rating or a low credit score?
Credit reports are essential when applying for credit because they provide lenders with a way to assess an individual’s creditworthiness. A credit report contains information about an individual’s credit history, including any late payments, defaults, repossessions or bankruptcies.
A good credit score is necessary to get the best terms on a loan, credit card, or mortgage. A bad credit score can result in higher interest rates. It may even prevent an individual from getting approved for credit.
Several factors can influence a credit score, such as payment history, credit utilization, and length of credit history, to name a few. Individuals with a bad credit history may improve their credit scores by making on-time payments and maintaining a Debt to Income (DTI) ratio.
However, it is essential to remember that the application process for credit is not always based solely on credit scores.
Lenders also consider other factors such as employment status, declared bankruptcies and asset portfolio (for lien/collateral).
The debt to income ratio, called DTI, is also an essential factor. Lenders are looking for overall stability and an accurate assessment of the risk they need to take in lending money to you.
Various options of getting a bad motorcycle loan or getting a motorcycle loan with a bad credit rating
Approaching a bank should perhaps be your first try. However, not all banks would allow you to take out a bad credit motorcycle loan.
It’s best to start with your bank, where you have a checking or a savings account. Speak with your bank to get an idea of what is on offer. Learn about their terms for your financial standing. If a bank approves your loan application despite your bad credit rating, it will typically be a secured loan.
You may ask for an unsecured loan, but that will come at a higher interest rate and may not be the best deal for you.
Make sure to ask a few banks so that you can find the best option. Make sure you ask about the repayment options as well. Some banks have stringent repayment terms with little or no flexibility.
They also may not allow refinancing — where one may reduce the monthly payments over a while by taking out a loan for an existing loan to reduce the overall amount of interest paid.
Tip ????: Make sure to ask your bank if it was going to make a soft or a hard credit rating enquiry. A hard credit rating inquiry can negatively impact your credit rating. It may only be required if you avail of the loan from the bank.
2. Credit Unions
A credit union might be your best option if you’re looking for motorcycle financing with bad credit.
Credit Unions often offer relatively low average annual percentage rates (APRs). Their loan offers are generally available to individuals that have poor scores or no history of financial success in this area – unlike banks, which mostly require applicants to meet higher criteria before they’ll consider lending money!
They also may charge less origination fee, which can help clients get back on the road faster than if approached by an institution specializing exclusively in mortgages/bad debts like most large bank chains do today.
3. Online Lenders
Together with Credit Unions, Online Lenders are a better option than banks in general. The entire application process is online, which is much more convenient than going to a physical location several times.
They usually have the lowest rates and make loans available to individuals with lower credit ratings with greater probability. They are partly able to achieve this because of little or no overheads, such as those that come from running a physical office.
Credit approval via online lenders takes place usually within minutes and at most the next business day.
Tip ????: There are too many online lenders. Take your time to carefully pick the best option for yourself.
4. Motorcycle Dealerships
Many dealerships have in-house options or have relationships with several lenders to help you finance your motorcycle purchase. Be sure to check with their finance department for all financing options.
I know this first hand because when I got my first superbike (Z900 in the picture above), the Kawasaki dealership worked out a financing option for me. I was, however, fortunate enough at the time to not have a bad credit rating and decided on another option instead.
But I was made aware that even if I did have a bad credit score, they could still help me secure a loan with some of their partners. However, this may come with high-interest rates because the dealership may be acting as an intermediary.
You almost certainly with getting better loan terms if you were to speak with the lender directly. Be sure to check other avenues to find out the best rates and terms overall before taking out a loan from a dealership.
Tip ????: If the dealership seems reluctant or tells you they have no options, be a little persuasive and pursue it with them with consistency. You will be surprised what a little repeated asking can do!
5. Motorcycle Manufacturers
They are typically known to serve customers with higher credit scores. However, they may also have existing relationships with bad credit loan lenders.
Overall it might be harder to get bad credit financing with a manufacturer, but it might be worth asking about their APR. Motorcycle Manufacturers may be able to offer much lower APRs, though. A lower APR would have been great if your credit score was better — that would have saved you money overall.
6. Personal Loans
Instead of opting for a bad credit bike loan, you can reach out to personal loan lenders. In this case the loan will not be limited for your motorcycle necessarily but for any personal use. The very nature of a personal loan is that, effectively, you are the collateral. While personal loan approval, even with poor credit scores, happens quickly, this should not be your first option.
They charge a higher APR, which is commensurate with the risk involved. You will always get better rates from credit unions, online lenders, banks and even most dealerships.
7. Home Equity Line of Credit (HELOC)
What this means is that you are ready to offer your house as collateral for the loan. I would question this decision at a deeper level — why would you need or want a motorcycle that risks your house? Be sure you have a good reason to choose this path. Personally for me, I would stay out of this altogether.
What if I still can’t get motorcycle financing
- Improve your financial situation and credit score: Patience is a virtue. You can patiently build up a budget to increase your downpayment, strengthening your motorcycle loan application. Also, pay off existing debts, primarily credit card debts. It will improve your credit score and your DTI.
- Get a person to cosign: If you must have the motorcycle immediately, ask a friend or a family member with a good credit score to cosign your loan. It ultimately is a risk mitigation requirement from a lender’s perspective. The co-signer would become legally responsible for paying the debt should you default. Be sure to take a long hard look at the decision before you make it. You might be putting a good relationship at undue risk.
- Lower your expectation: Will a less expensive new bike do? Can you get a more entry-level motorbike for now and upgrade later while you work on your credit score? Or would you be open to a used motorcycle instead?
The general wisdom is that only borrow if you already have the money or there is a sure way of repaying it.
I know that sounds counterintuitive, but that’s what the rich do. I bought my first motorcycle when I did have enough money to pay for it in one go! But I am not rich ???? — I am just trying to learn from them!
But ultimately I didn’t pay all cash. I instead put in a 40% downpayment and got motorbike finance for the rest.
I was, therefore, able to build my credit score later on, as the loan lasted for five years, and I never missed any payment. But I always knew that I could pay off the entire loan at any time if I wanted to and that I had all of this capital sitting for other use if I had to.
That felt secure to me. But that came with a patience and I had to wait to get into that financial standing.
Good luck with your decision and your loan application. ????