Using Credit vs. Motorcycle Loans: Pros and Cons

Many lenders will offer private label credit cards for motorcycle loans rather than typical installment loans to purchase a motorcycle. These cards may be offered directly through the manufacturer such as Honda, Suzuki or Yamaha. These companies finance the purchases totally with credit, essentially allowing you to put your purchase on a credit card with a limit rather than getting a lump sum to pay off over time. While this option may work for a small amount of people, there are also a number of drawbacks.

Pros of Credit Card Motorcycle Loans

Typically require low to no down payment - When you are issued a credit card with the sole purpose of purchasing a motorcycle, you will not likely have to pay a down payment for the bike. Rather, you will finance the entire purchase on the card. Then, you will pay off the entire amount over time.

More flexible payment structure - As with most revolving credit lines, you will have a minimum monthly payment to keep your account from going past-due. You may also pay more than the minimum, and you may possibly even pay down the balance. This allows more flexibility for those months when you have less cash on hand.

Less-strenuous applications - Often, this option is more profitable to the lender than an installment loan option. Because of the increased profit margin, many lenders are willing to give you the loan even if your credit is less than perfect. Don't get too excited, though; continue reading to learn more about why the option that is more profitable for the lender is more costly to the borrower.

Cons of Credit Card Motorcycle Loans

Adjustable interest rates - The number one reason credit card motorcycle loans are not as desirable as installment loans is because of the adjusting rates. Your loan will be subject to fluctuating rates throughout the term of your loan. Most often, these rates will be going up.

Higher interest rate - Because you are not providing a down payment in most cases, your interest rate with a credit card will be much higher than with an installment loan. Interest rates on the whole tend to be lower, or at least present you with more options, if you opt for the installment loan. By adjusting the length of the loan and terms of repayment, you can secure a lower rate.

Larger loan resulting from no down payment - Making a down payment and choosing an installment loan also gives you the chance to finance less of the purchase, meaning you will owe less in interest over time. When you provide no down payment, the entire purchase price of the vehicle will have interest assessed against it.

Low promotional rates do not last - Most of the credit card motorcycle loans you will be offered will have low introductory rates. Similar to the sub-prime mortgages that got so many people into trouble in 2007, low introductory rates on credit cards can mean your monthly payments will spiral out of control as soon as the rates adjust.


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