A Loan for a Motorcycle is an Example of a Secured Loan

When you need to finance the purchase of a major asset like a motorcycle, one option is taking out a secured loan. A secured loan uses the asset being financed as collateral, which is why a motorcycle loan is considered a prime example of this type of borrowing.

What is a Secured Loan?

A secured loan is a type of loan that is backed or “secured” by an asset that the borrower owns. This pledged asset acts as collateral that the lender can seize if the borrower defaults on the loan.

Some key features of secured loans:

• Collateral is required – The borrower must put up something of value as security for the loan, like a vehicle, property, or financial assets.

• Lower interest rates – Secured loans tend to have lower interest rates than unsecured loans since the collateral protects the lender.

• Higher approval odds – Providing collateral for the loan improves the chances it will be approved, even with bad credit.

• Can lose collateral if default – Failing to repay the loan means the lender can take possession of the collateral.

Why a Motorcycle Loan is a Secured Loan

When you purchase a motorcycle using financing from a lender, this is considered a secured loan because the motorcycle itself serves as the collateral.

Here’s why motorcycle loans are almost always secured loans:

• The motorcycle has tangible value so it adequately secures the loan.

• The lender can repossess and sell the motorcycle if needed to recoup unpaid loan amounts.

• The motorcycle as collateral means lower rates and more accessible financing.

• The lender attaches a lien to the title so ownership transfers if unpaid.

• Secured loans are standard for assets that depreciate like vehicles.

Essentially, the fact that the lender is relying on the motorcycle to ensure repayment means it is a secured loan by definition.

How Motorcycle Loans Work

When you get financing to purchase a motorcycle, the basic process typically works like this:

• You select the motorcycle you want and apply for financing through the dealership or lender.

• The lender reviews your creditworthiness and motorcycle value to make a loan decision.

• If approved, you’ll receive loan terms including the interest rate, monthly payments, loan length, and collateral requirement.

• You’ll provide the motorcycle title to the lender, who places a lien on it during the loan.

• The lender transfers the agreed purchase amount directly to the motorcycle seller.

• You gain possession of the motorcycle while repaying the lender over time.

• The lender removes their lien from the title once you’ve paid the loan in full.

• If you stop making payments, the lender can repossess the motorcycle.

Motorcycle loans allow you to buy and enjoy a new bike now while spreading out the cost over months or years as you repay the financing.

Benefits of a Motorcycle Loan

While you may be eager to start riding, financing a motorcycle purchase through a secured loan offers some advantages:

• Pay over time – Repay the loan in installments through scheduled payments instead of paying the full price upfront.

• Lower rates – Secured loans typically have lower interest rates, saving you money.

• Build credit – Responsibly making payments can help improve your credit score.

• Buy sooner – Get the keys quicker rather than saving up to pay in cash.

• Extra perks – Some lenders offer extras like discounted riding gear.

• Tax benefits – Depending on use, motorcycle loan interest may be tax deductible.

Just be sure to borrow only what you can reasonably afford and budget for repayment from the start.

Risks of Defaulting on a Motorcycle Loan

Because a motorcycle loan is secured against the bike itself, failing to repay has serious consequences:

• The lender can seize your motorcycle through repossession when payments stop.

• You lose equity invested in the bike you can no longer ride or sell.

• Your credit score will plummet, making future borrowing very difficult.

• You may owe additional fees for collection, storage, transportation, etc.

• You could face legal action or wage garnishment over the unpaid debt.

• It becomes exponentially harder to obtain financing in the future.

Clearly, it’s critical to keep up with your monthly motorcycle loan payments. Defaulting should only be a very last resort. Be sure to budget properly for the payments from the outset.

Alternatives to Motorcycle Loan Financing

While secured lending against the motorcycle you want is common, it’s not the only option:

• Save up to pay in cash without financing. But this can take quite a long time.

• Put the purchase on a credit card. But interest rates are usually much higher.

• Take out a personal loan without collateral. However, this likely means higher rates.

• Try dealer financing if they offer incentive programs. But this limits shopping around for rates.

• Use a home equity loan with your home as collateral. Although this also risks your home if defaulting.

• Explore 0% interest promotional financing from manufacturers. But these deals have a limited timeframe.

For most buyers, going the secured loan route by pledging the motorcycle as collateral is the optimal way to finance a new bike. Just make sure your budget allows you to take on the additional debt responsibly.

Finding the Best Motorcycle Loan Lender

If you decide that secured financing is the right choice, it pays to find the most affordable loan terms. Here are some tips:

• Check rates from your bank, credit union or online lenders

• Compare Annual Percentage Rates (APRs) that reflect total costs

• Look for low or no application fees

• Ask about discounts for safety courses or good grades

• Consider used motorcycle loans which may have lower rates

• Review lender reviews and complaints before choosing

• Read the fine print for any hidden fees or prepayment penalties

Doing your homework can help you discover the most competitive motorcycle loan for your particular situation.

Is a Motorcycle Loan Right for You?

Before revving up and riding off into the sunset with a bike bought on credit, be sure you can truly handle the commitment:

• Do you have a steady source of income to repay the loan consistently?

• Does the monthly payment fit comfortably within your budget?

• Are you getting the lowest interest rate available with your credit profile?

• Have you shopped around for the best loan terms and lender?

• Will you have savings left over for gear, maintenance, insurance?

• Can you realistically afford the bike if the loan term ends before it’s repaid?

If you feel confident answering “yes” to the above, then financing that dream bike through a secured motorcycle loan may be the right move. Just be an informed borrower and understand the risks. With discipline, you can cruise along the open road this season with minimal financial worries.