Can You Refinance Your Motorcycle Loan?
If your motorcycle loan is putting a strain on your budget, it might be time to consider refinancing.
Much like refinancing an auto loan, timing matters if you want to refinance a motorcycle loan. Depending on your credit history, the value of your bike and current interest rates, you may or may not be able to qualify for something better. But if the timing is right, you could refinance into a new loan and ride away happy.
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How to refinance a motorcycle loan
While you could apply with the first motorcycle refinance lender you find, it takes a bit of legwork to get into a better, more affordable loan. Here are the steps you’ll take to get a new motorcycle loan:
Decide if refinancing is right for you
Refinancing can be a good option when you want new terms on your loan — but there’s no guarantee that refinancing your motorcycle will get you the terms you want.
Before applying, be clear on what you’re hoping to achieve. Generally, refinancing is only worth the effort if it helps you achieve one or more of the following goals:
Reducing your monthly payments
Reducing your interest rate
Cashing out your motorcycle’s equity
Paying off the motorcycle sooner
Removing or add a cosigner
Switching to a better lender
Check your credit
Credit scores have a direct impact on your loan terms. If your credit scores have improved since you took out your original loan, you might be eligible for better loan terms.
Credit scores can vary depending on how they’re calculated (for example, FICO versus VantageScore). Generally, though, the higher your credit score, the more likely you are to receive affordable, competitive rates.
Shop around and get prequalified
Some lenders offer loan prequalification, which gives you a sneak-peak into the rates and terms you may qualify for. When you check out prequalification offers, you can get a good idea of what you’re eligible for, without having to submit a full application or losing points from your credit scores. Use a motorcycle calculator to understand both the monthly payment and total cost of your new loan.
Each lender has something different to offer. In fact, their terms could be so different that one lender may cost you a lot more than another. Before applying, compare motorcycle lenders, including your bank or credit union, to see which one has the best terms for you.
Here’s what to look for:
- Minimum and maximum annual percentage rate (APR)
- Credit score requirements
- Repayment terms (the amount of time you have to repay the loan)
- Origination fees, late fees and other charges
- Prepayment penalty
Note that some lenders won’t refinance their own loans.
Finally, you’ll need to submit an application. This can usually be done online in just a few minutes, though the lender may send a follow-up request if more information is needed. Be prepared to provide details and required documents related to your income, your existing loan and your motorcycle.
Does it make sense to refinance your motorcycle loan?
There’s no guarantee that refinancing will get you the results you want. Before applying to refinance your motorcycle loan, be sure to look closely at your finances and determine whether refinancing makes sense for you.
When you should refinance
Your credit score has improved
As stated above, the higher your credit score, the more likely you are to qualify for low rates and favorable terms. And if you’ve consistently made your motorcycle loan payments on time and your loan balance has decreased, there’s a chance your scores have improved.
Interest rates have gone down
If interest rates have dropped since you took out your original loan, you might be able to secure a better rate and save money. For example, refinancing $15,000 from a 9% rate to 6% would save you around $740 over the life of the loan. (Still, keep in mind that application fees could eat into your cost savings.)
The type of lender you choose can also make a difference. Dealerships tend to charge the highest interest rates and fees, so you might be able to reduce your interest rate by refinancing from a dealership loan into a bank or credit union loan.
You can afford a shorter loan term
The shorter your loan repayment term, the more money you can save. Although your monthly payment may be higher, you’ll save money in the long run, since the loan has less time to accrue interest charges.
If you’ve paid off a significant amount of your original loan balance, or if you’re in a position to make bigger monthly payments, you could potentially refinance into a loan with a shorter repayment term.
When you shouldn’t refinance
The costs outweigh the savings
Unfortunately, refinancing isn’t free. Some lenders charge fees, like origination or application fees, and you’ll also have to pay interest on the new loan. Before accepting a refinance offer, compare the total cost of repaying your current loan with the total cost of refinancing.
Your loan has a prepayment penalty
A prepayment penalty is a fee some lenders charge when you pay off your loan early. Not all lenders charge a prepayment penalty, but you should find out what your lender’s policy is before refinancing and paying off the loan.
Frequently asked questions
Refinancing a motorcycle loan can affect your credit score in a few ways. In the short term, your score may drop as a result of your loan application(s), new debt and a recently closed motorcycle loan. In the long term, however, your score can improve as you pay down the balance and make on-time loan payments.
Yes, you can refinance a motorcycle loan with bad credit — though the better your scores are, the more likely you are to qualify for affordable terms.
The cost of a refinance motorcycle loan will depend on the details of the loan. To calculate the total loan expense, add up all of the new lender’s fees, plus the total interest charges over the life of the loan and any prepayment penalties you may have to pay to your current lender.
When you refinance your motorcycle, your new loan will be used to pay off your old loan. The new lender may pay off the old loan for you directly, or you might need to arrange the final payment yourself.