How Are Motorcycle Loan Rates Calculated?

iQuanti: If you understand how motorcycle loan rates are calculated, you'll be able to get a better picture of the loan's terms, including how much you'll end up paying for the loan over time.  

A motorcycle loan rate is calculated through several different factors. Your financial situation, including your credit history and income, comes into play. What lender you choose will also affect your motorcycle loan's interest rates. 

Types of Motorcycle Loans: Secured vs. Unsecured Loans 

Secured Loans 

The most important element of a secured loan is its use of collateral assets. When you take out a secured loan, you're guaranteeing an asset to be repossessed if you default on your loan payments. For motorcycle loans, your motorcycle will typically act as collateral. 

Secured loans will usually have lower interest rates than unsecured loans. This is often their biggest upside. Still, secured loans will also require down payments and can mean losing your collateral if you're not careful. 

Unsecured Loans 

Whereas secured loans require collateral to approve you, unsecured loans will usually approve you for a loan based on your income or credit. Since there's no collateral, you don't risk repossession or disclosure if you default. However, if you fail to make payments, you could incur fees and damage to your credit score, or be sued to enforce repayment of the debt. 

The application process for unsecured loans often goes more quickly than secured. Their interest rates tend to be higher than secured loan interest rates, though.  

Types of Lenders: Traditional vs. Non-traditional 

Non-traditional lenders 

If you've ever received a loan from a dealership or manufacturer, this is what's known as receiving a loan from a non-traditional lender. Any company that doesn't specialize in financial products can still offer financing options for their products. 

While these non-traditional lenders can seem to offer lower rates in comparison to their traditional counterparts, they have limited flexibility in what expenses you can pay with the loan.  

Traditional lenders 

Any financial institution that counts lending as one of its primary services is known as a "traditional lender." Traditional lenders can provide a number of loan options to finance purchases, and if you take out an unsecured loan, you're not limited in how you can spend the money.  

Traditional lenders will typically offer fixed interest rates, so you don't have to worry about paying a higher rate over time. You may also find a number of different loan options to choose from, depending on the lender you pick. 

Your current finances 

Whenever you take out a loan, you should always pay attention to a couple of vital details in your financial situation. Your income and credit history are the two most important elements in determining what kind of loan you receive. If you have a good history of paying back credit and you have a stable income, there's a chance you'll receive better interest rates and repayment terms on your motorcycle loan. 

Poor credit or income doesn't necessarily eliminate your chances of taking a loan, though. Make sure to check with your lender to see if there are any loans you could prequalify for. 

The Bottom Line 

Once you know a bit more about lenders and the types of loans they can give you, you'll start to have a better idea of what kind of loan you want to finance your motorcycle purchase. That way, you can feel comfortable taking out the right loan for you. 

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Source: iQuanti, Inc.

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Categories: Personal and Family Finances

Tags: loans, motorcycle loans, personal finance