Interest Rate Differences Between Motorcycle Loans and Car Loans

Motorcycle loans are available through a variety of traditional and alternative lenders. They are very similar to car loans in a number of ways. They are traditionally secured against the asset, in the form of an installment loan, and are often provided directly through the manufacturer. However, there are a few key differences between the two types of loans which can lead to differences in interest rates. 

Loan Limits

Motorcycle loans tend to have lower limits than car loans. The average motorcycle is much less expensive than the average car. As a result, the average motorcycle loan is much smaller than the average car loan. Whenever the loan is smaller, it is likely the interest rate on the loan will be lower. The lender is taking less risk in sourcing a loan for a low amount than a loan for a high amount. The exception may be certain luxury or custom motorcycles, which can be as expensive as many cars. If you are looking to purchase one of these pricier bikes, it is a good idea to shop for your loan first and the bike second. If you get your eyes set on a vehicle you cannot afford, you may end up with a loan that is far beyond your financial reach.

Trade-In Value

Most car purchasers use a vehicle trade-in to provide the bulk of the down payment on a loan. This serves a double effect to make the loan cheaper: first, the loan limits come down with a higher down payment; second, a large down payment can provide the lender with more confidence in you as a borrower, reducing your quote further. Many motorcycle purchasers are first-time buyers. It is not common for a person to have a long line of motorcycles, though it does happen. Because these borrowers are looking for their first motorcycle and motorcycle loan, they will not have a vehicle to trade in for the purchase. Providing a high cash down payment is the only other option to get a lower interest rate based on down payment size. If this describes you, you may want to seek two loans. The first will be a high-interest cash loan for the down payment that you pay off very quickly. The second is the motorcycle loan, which will be less expensive because of the larger down payment.

Other Loans

If you have a high number of outstanding loans on your credit report, you may have a higher interest rate on a new loan. With motorcycle purchasers, they often have a car loan also on their balance sheet. It is advantageous to pay off loans for other vehicles before financing a purchase your motorcycle. You will be considered a much riskier borrower if you currently have open loans on cars, recreational vehicles or boats. It is generally acceptable to have a few open credit lines, but having too many can end up costing you a lot of money in your interest rates on future loans.


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