Upside-down Motorcycle Loans

AVOID BECOMING UPSIDE-DOWN ON YOUR MOTORCYCLE LOAN
New motorcycles depreciate in value the instant they are driven out of the showroom into the street. This often results in buyers utilizing financing for their purchase becoming up-side-down on their loan. This means that they owe more for their bike than the bike is actually worth.

Unfortunately, many consumers learn what the phenomena of being upside-down is only after they have experienced it for themselves. Typically, motorcycle loans that are longer than 48 months (especially without a down payment) will put consumers in the situation of owing more than their bike is worth.

The type of interest calculation your lender uses will make a tremendous difference in pre-determining the possibilities of falling into this financial rut. There are two primary interest calculations, simple interest and pre-computed (combined with rule of 78).

Simple interest is more favorable for buyers since interest accumulates on the balance of the loan. However, it is still possible for buyers that extend their loans for more than 48 months to become upside-down with simple interest. This is likely to occur if no down payment is made. The reason this would happen is that the bike depreciates quicker than the principal is paid, resulting in the balance owed to the lender to be greater than the motorcycle can be sold for.

Pre-computed interest combined with Rule of 78, is usually a less favorable situation for buyers since the majority of interest is paid in the first 24 months. As a result, a very small amount of payments go towards paying down principal in the first 24 months. If a buyer wants to trade-in or sell their motorcycle during this timeframe, they will probably find themselves owing more for the motorcycle than it is worth. It is important to note that statistics show that the average owner looks to trade in their motorcycle every 18-24 months.

A common practice by people caught in an upside-down situation is to surrender their bike to the lender. This is not a smart idea. Your problems are not going to disappear when your bike is repossessed or surrendered. First, the lender will sell your bike at auction for much less than what it is worth. You will still be responsible for the difference between what the bike was sold for and what you owe. For example, suppose you owe $7,000 and the bike sells for $2,000, you are still responsible for $5,000. You will also be obligated to pay all of the fees associated with the auction! Do you really want to make payments for a motorcycle that you no longer own?!

To avoid becoming up-side down on your loan, consider the following:
- Apply for a new motorcycle loan with a lender that utilizes simple interest. All of the financing programs Motorcycle Loan Center provides are simple interest. APPLY NOW!
- Try and leave a down payment on your bike of at least 15%.
- Avoid financing a bike for more than 36 months.

By following the input above, not only will you avoid becoming upside down, you will also receive lower interest rates and save money as a result. You can learn more about motorcycle loan rates.

**If you are buying a new motorcycle, you should think about buying a gap insurance policy for financial security.

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