This article is targeted towards young people that are either inexperienced with how credit works or have never tried obtaining a motorcycle loan before.
What is a loan? Basically it’s paying to use the banks money. An interest rate is the cost of borrowing money. Interest rates are determined by creditworthiness. Creditworthiness is basically determined by how you pay your bills and credit cards.
Here in the Peoples Republic of Maryland, we have laws. Lots of them. Other states have fewer regulations and therefore an easier time with subprime lending institutions. A subprime lending institution is a bank that will finance people with poor credit, usually at a high interest rate. As it stands, in Maryland, obtaining financing for a motorcycle can be extremely annoying. Many banks avoid motorcycle loans unless you have STELLAR credit.
Okay so now I’m about to get real with you. Motorcycles are not for poor people. If you are young or have been irresponsible with money at ANY point in your life you will have trouble financing a bike. If you don’t have an idea of what your credit score is you need to stop reading this article and learn NOW. Be and adult and get your priorities in order. You can always check your score for FREE at Credit Karma. Right now I’m going to go over a few different credit questions and scenarios. These are all from my personal experiences in sales and finance.
What does the bank or finance company look for when it runs my credit? Everything. They see everything. They see all of your credit card balances, your mortgage, your car payment, child support, bankruptices, evictions, EVERYTHING. One of the big things they also look for is a good debt to income ratio. http://www.bankrate.com/calculators/mortgages/ratio-debt-calculator.aspx
They also take into account how long you’ve been at your job and what your specific income is. Sometimes they will look at total household income if you are married.
What will immediately disqualify me from getting a motorcycle loan? pretty much any type of collection unless you have proof of payment. Also, if you have no job or an off the books job (or you’re a drug dealer) don’t bother applying. Don’t mention any income that is under the table. If your income isn’t reported and you aren’t getting taxed on it, it won’t count towards income. Annoying, but it makes sense. Usually you will need paystubs to prove income and how long you’ve worked with your employer. Quick tip as well. When you are filling out your credit application and need a reference don’t put “Baby Moms” anywhere on that piece of paper.
What if I have a cosigner? Nothing will help you if you have bad credit. Cosigners really are only good for situations where the they are backing someone with a very short credit history. Your cosigner must have good to excellent credit to back you. Most lending institutions want the cosigner to be a blood relative or parent. Sometimes a lender will want a spouse on the loan
Can someone else finance the motorcycle for me? The short answer to this is no. It’s called a straw purchase. Someone else can purchase the bike for you in CASH, but cannot finance it for you. You wouldn’t believe how many guys try to get their girlfriends to finance motorcycles for them. No honest sales or finance people at a dealership will allow this to happen, but sometimes it does. To sneak that by the finance company takes planning. Sometimes, the finance company will require the buyer to have a motorcycle endorsement. You can do it, but it takes planning, some lies and a little luck. Would not recommend on many different levels.
Why can I qualify for a car loan, but not a motorcycle loan? Do not think of a motorcycle loan like a car loan. A motorcycle is a luxury item, a car is not. People with 700+ credit scores can get denied for a motorcycle loan if the bank thinks you are too high a risk. An acceptable credit score for a motorcycle loan is 650 or above with no collections. However, there are some situations where the underwriters can be convinced. This usually involved equity (cash money).
Will putting money down help? Yes and no. The more money (equity) you have to put towards your new motorcycle, the more the finance company will be comfortable letting your borrow their money. If you have a strong down payment (like 40-60%) you may get away with a less than stellar credit score.
Are there any other options? Yes! Apply for a zero interest credit card (there are ton with 0% intro APRs for a year), go to a dealership and purchase the bike in full with a credit card. You will have to pay a credit fee usually, but this is a good option especially if you are only putting 3k on the credit card. Thats usually pretty easy to pay off quickly before the intro APR ends. Warning: if you don’t understand credit cards, don’t utilize this option.
I worked at a Honda and Yamaha dealership so I’m going to go over a few of their programs and a few other ways to get financing in the state of MD. Every state has different regulations and some may differ.
- OEM manufacturer financing like Honda or Yamaha
- Outside bank or credit union
- Unsecured Personal Loan
Honda is a hard lender to get approved by and the interest rates can be high. If you have any issues with your credit don’t even bother looking at Honda motorcycles. For real. Honda does have a first time buyers program, but even that is kind of shitty. You need to have your job for at least 1 year, make over 1k/month and have NO established credit. I’ve seen them accept people with one starter credit card already on their credit bureau. However, this is only for $3,500 (and usually at an interest rate of 10-18%). So you have to come up with the rest out of pocket. Depending on the bike you will have to come up with $1,000 to 7,000 out of pocket. Meh. There will be a lien on the title so you must get full insurance coverage which can be expensive when you are under 25.
Yamaha has some better options for people with bad or mediocre credit. They have 3 different lenders. You can get a traditional loan like with Honda or you can go for a credit card option. The credit card can be a good option because it’s a large line of credit. Once you pay it down your credit looks excellent and you can even buy stuff from the dealership with this line of credit. The interest rates are pretty good for the Yamaha credit card too, but make sure to pay it on time! That nice interest rate will go away if you miss a payment! If you want to pay off the bike in 6 months, they will do 0% financing. Yamaha also has a second chance type loan institution for bad credit. You will have to have bad credit, a solid down payment and good job history to qualify for their second chance loan. They usually have a whole checklist of shit you have to comply with.
Outside banks or credit unions can be hesitant to finance motorcycles, but if you have decent credit they do have the best rates. However, they usually stay away from financing used motorcycles. A way to get around this (and to get around having a lien on your title) is just asking them for a personal loan and not mentioning the motorcycle at all. USAA and Navy Fed are the exception and have great interest rates and don’t usually shy away from motorcycles. If you can get a loan through them, DO IT. Lightstream through Suntrust is also a good lender, but they do require pretty good credit.
Unsecured personal loan from an online lender is a last ditch attempt, especially if you have bad credit. Once you are approved you get the cash in your bank account pretty quickly. There will be no lien on your title, but the rates can be 25-30%. This is pretty astronomical, but you are only borrowing a small amount of money and if you pay off the loan fast, that rate won’t hurt as much and can also help boost your credit score if it isn’t where it should be.
I’ve worked in the motorcycle industry for many years and these are some of my personal experiences. Hope they help!