The Risks of Motorcycle Loans

Motorcycle loans are available both through dealers and through lenders. With any large loan, there are common risk factors associated with late payments, defaults and overspending. There will be unique risk factors in a motorcycle loan depending on the type of loan you pursue. Ultimately, you should make a decision that is financially sound rather than a decision that allows you to have your dream motorcycle.


The major risk with a motorcycle loan is overspending on what is essentially a luxury purchase. Most people who purchase motorcycles have other vehicles as a primary form of transportation. A motorcycle is not a necessity, but that does not stop people from going into debt to purchase one. Remember: even luxury purchases should be made with a budget in mind, especially if they are being financed.

The biggest mistake people make when choosing a motorcycle loan is shopping for the bike first and picking one they cannot afford. A better idea is to shop for the loan first. Decide how much debt you can take on and the interest rates you will be quoted based on the size of your debt load and your credit score. This will give you an idea of your actual budget for a motorcycle purchase. 

Using a Dealer Credit Card

Many dealers will offer a credit card directly from the manufacturer you can use to finance the entire purchase of your motorcycle. These credit cards come from manufacturers like Honda who stand to benefit two-fold by financing your purchase of their vehicle. They make money on the purchase, and they make more money on the interest they assess for that purchase. The main risk of these dealer credit cards is the sub-prime interest rates they offer as an incentive to purchase. They will often have a very low introductory rate, but this will go up astronomically after the grace period.

These cards are revolving credit lines just like your credit cards. If you do not discipline yourself to make regular monthly payments and pay down the balance, you will find yourself carrying debt year after year and paying high interest rates when you do. Since the loan gets more expensive over time with the increasing rates, you will lose money if you do not pay down the balance promptly.

Default or Seizure

Motorcycle loans may be secured or unsecured. If you have an unsecured loan, the company has no access to your assets in case of default. However, your interest rates will be significantly higher. To make your loan less expensive, you should opt for a secure loan. A secure loan uses collateral to take the burden of risk away from the lender and make the financing less expensive. Realize that the asset can be seized if you default on the loan. In some contracts, the asset may be seized even if you fail to make several payments.

Seek a favorable contract to protect yourself from seizure of your assets. You should also set money aside for an emergency, like a job loss, so you can continue to make payments on your motorcycle even if you experience a short-term loss of income. It is important to remember you will be paying insurance premiums on your motorcycle and to put this money aside as well.


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