Watch Out, The Depreciation On Your Motorcycle Can Affect Your Motorcycle Loan
Like cars, many new motorcycles depreciate very quickly after they are driven out of the dealership. As a result, if you are a motorcycle buyer looking for a motorcycle loan or financing, it is important you understand that not getting the right type of motorcycle loan can put you in the position of owing more on your motorcycle than it is actually worth if you were to sell it. This occurs with some motorcycle loans because the value of your motorcycle depreciates faster than you are paying down the principal on the motorcycle loan. This makes it very difficult to sell or trade in your motorcycle if you have not paid off the loan.
Most motorcycle buyers feel that they will pay off their loan before they sell their motorcycle, but this is simply not the case. Many motorcycle buyers get loans for 60 months or greater to lower their monthly payments and then proceed to sell or trade in their motorcycle after a couple of years. The longer the term of your loan the higher your vulnerability is to owing more on your motorcycle loan than your bike is worth if you choose to sell or trade it in. This is especially true if you get a zero down payment motorcycle loan, 72 month motorcycle loan or an 84 month motorcycle loan.
In addition to the term on your motorcycle loan or financing, you should watch the type of interest calculation that is used by your motorcycle lender. There are primarily two types of interest calculation used by motorcycle lenders: pre-computed (combined with rule of 78) and simple interest.
A pre-computed interest calculation combined with Rule of 78 is by far the worst for motorcycle buyers. The reason for this is that in the first 24 months of the loan most of the monthly payment goes towards paying off interest and very little of the monthly payment goes to paying down the value of the motorcycle. Therefore, on a 60 month loan with a zero down payment a motorcycle buyer can easily find themselves owing more for the loan than the value of the motorcycle. This makes it nearly impossible to trade in the bike or sell it during the first 24 months of the motorcycle loan.
A simple interest calculation is therefore the best alternative for a motorcycle buyer because it contributes less to interest (than pre-computed interest) in the early years of the loan and more to paying down the value of the motorcycle. However, if you have a motorcycle type that traditionally depreciates quickly you can still be affected negatively with your motorcycle loan especially if you opt for a zero down motorcycle loan with terms of 48 month or more.
Here are 6 steps you can use to help you get the most from your motorcycle loan and to help you get prevent from owing more on your bike than it is worth if you decide to sell it or trade it in during the early years of your loan.