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Powersport Loans For Bad Credit

From ATVs to Jet Skis to snowmobiles, there’s a powersport vehicle for every surface and weather condition. With your choice of powersport vehicle, you can experience the wild outdoors and tackle the toughest terrain.

If your credit is less than stellar, however, you may think that buying a powersport vehicle is out of reach. While it’s true that getting financing without an excellent credit score can be more challenging, that doesn’t mean it can’t be done. Not only is financing possible, but getting an installment loan, such as vehicle financing, can actually improve your credit score if you make all of your payments on time.

Here’s what you need to know if you’re interested in buying a powersport vehicle with bad credit.

What is a powersport vehicle?

The definition of a powersport vehicle can vary by lender. Generally, the category can include motorcycles, side cars, all-terrain vehicles (ATVs) and utility vehicles, snowmobiles and personal water crafts (PWCs). Basically, if you ride on something rather than in it, and you control the vehicle with a handlebar instead of a wheel or rudder, it’s considered a powersport vehicle.

Powersport vehicles may hold more than one person, and they are usually, but not always, used for recreation.

The cost of a powersport vehicle

Costs vary considerably among models and years of powersport vehicles, but here’s an idea of how much you may need to spend to buy each major type:

  • Motorcycles: You can still get a trail motorcycle for a base price of less than $10,000. According to Motocross Action Magazine, a 2019 Honda CRF450 bike costs $9,299, and the Honda CRF150 model goes for $5,099.
  • All-terrain vehicles (ATV): A new ATV can run about $6,000 to $8,000 for an average 450CC model. The price runs higher or lower, depending on whether you want extra power and all of the add-ons. Buying used could save you 50% or more off the new price of an ATV.
  • Snowmobiles: New snowmobiles can also easily cost $10,000. They depreciate rapidly, however. You can find used ones for as little as $2,000.
  • Personal watercraft: For a new, high-end personal watercraft, you could spend up to  $17,000. If you’re happy a more compact, “rec-lite” model, you can get one for less than $5,500. Used PWCs cost less than new ones.

Don’t forget to take into account the additional costs of powersport vehicles. State laws vary, but you generally need a driver’s license, and some states may require special training and licenses.

Insurance is another expense that you will need to budget for. For example, personal watercraft insurance could run from $150 to $500 a year.

You’ll need a way to get your vehicle to your off-road location, which means you could be shopping for a new pickup and trailer. You could spend anywhere from $500 to $3,500 on a trailer.

Some powersport vehicles require more safety gear and special clothing than others. Life jackets, warm clothing, helmets and gloves can all add up. Make a list of everything you will need and figure out how much each item should cost ahead of time.

Fuel may be one of the first expenses you think of, but it actually can turn out to be one of the least consequential. Powersport vehicles tend to be very frugal on fuel. However, you will need to budget for regular maintenance. For example, you should plan to spend about $100 per year to maintain a Jet Ski.

Be sure to add up all of your initial and ongoing expenses before you decide to buy a powersport vehicle.

Which lenders offer powersport loans for bad credit?

Before looking exclusively at lenders that offer powersport loans for bad credit, don’t automatically assume that you have bad credit. “First of all, let’s check and see what your credit score is,” recommended Karen Ford, master financial coach at KarenFord.org in Fairmont, W. Va. “Why do you think your credit score is bad? Maybe something happened five years ago. It might not be that bad now.”

You can check your credit score for free through the My LendingTree tool. Your score is considered poor if it falls between 300 and 599, and fair if it is between 600 and 659.

If your credit score is bad, here are some lenders that do offer powersport loans for borrowers with less desirable credit:

Banks and credit unions

Banks and credit unions function similarly in that they both may offer loans and deposit accounts, as well as other financial services. Banks are generally operated for profit, while credit unions are owned by the participants and are nonprofit organizations.

The best bank to work with may be the one you already do business with, as your credit score may be less of a factor if you have an established relationship with the bank. “I would recommend that they go to their bank first, because the bank already knows them,” said Ford. “They already have an account.”

If there is a local branch of your bank, you can talk to a loan officer, and they can tell you how to apply for a loan and what they offer. You can get preapproved to borrow up to a certain amount before you look for a powersport vehicle, so you know you’re not wasting your time looking at vehicles that are out of your price range. Your bank may even give you a check or coupon with the preapproved amount that you can take to the powersport vehicle dealership (or anywhere else) to use on your purchase.

Though banks and credit unions are very similar, a credit union may offer lower fees and preferential terms because they are nonprofit organizations that are owned by their members and often pass savings and earnings back to them. You must be a member of a certain group to join a credit union; for example, there are credit unions for employees of certain companies, or for people affiliated with a school. However, with over 5,000 credit unions across the U.S., 99% of Americans can find a credit union to join.

A disadvantage of bank or credit union financing is that it may not always be your least expensive source of financing, especially if you qualify for low- or no-interest financing from the dealership.

Wells Fargo is one bank that offers powersport vehicle loans, as well as loans for boats, yachts, RVs and even aircraft. You don’t need perfect credit to get a loan from Wells Fargo. You can get funds in as little as one to two days, and there is no penalty for paying your loan off early (and saving on interest expenses).

Navy Federal Credit Union is an example of a credit union that offers loans for new motorcycles starting at 7.25%. Rates on used motorcycles and other eligible vehicles start at 8.09%, as of publication.

Dealership or manufacturer financing

“My second choice would be the dealer where they are purchasing the vehicle,” said Ford about the available powersport financing options for bad credit.

Some manufacturers have their own finance companies, while others partner with a bank or other lender. Dealership financing uses the vehicle as collateral. If you miss payments, the lender will repossess the vehicle. The good news is that approval requirements are less strict, because the collateral protects the lender. Depending on your credit score and the type of financing the dealer is offering, the interest rate could vary widely. Do note that it will typically be higher if you don’t have good credit.

While dealerships can be a good place to get a loan because the dealership is are motivated to make a sale, be sure to shop around before you sign. Michael Internoscia, principal CEO of M & M Private Lending Group, LLC, in Miami, cautioned against dealerships that advertise “buy here, pay here” vehicle sales.

“The likelihood is that the vehicle is going to be overpriced, and if your credit is bad, they’re going to charge you something like 24%,” he said.

Online lenders

Online lenders offer loans on powersport vehicles, including new and used snowmobiles, Jet Skis, ATVs and UTVs. Loan amounts typically range from $1,000 to $100,000, and there are options for buyers with less than perfect credit. A lower credit score, however, generally means a higher rate of interest.

The advantage of online lending is that you can quickly get an idea of the loan and interest rate you qualify for. You can get prequalified for a loan, even before you know which vehicle you want to buy. If the dealer or another lender then offers you a better deal than you can get with an online lender, there’s no obligation.

The disadvantage of using an online lender is that you can’t sit down with a live person and get help applying for a loan.

Some online lenders are part of a bank or other lender. For example, LightStream‘s lending services are provided by SunTrust Bank. Borrowers with good credit can qualify for a 24 to 144 month personal watercraft loan, with rates from between 4.99% and 16.79% on a loan between $5,000 and $100,000, depending on the borrower’s creditworthiness. The rate will increase by 0.5% if the borrower chooses not to use autopay for monthly payments.

Other types of financing for powersport vehicles

You might also look into other ways to finance a powersport vehicle, depending on what is available to you. For example:

1. Person-to-person loan

You may be able to borrow from someone, such as a parent, brother or sister, or friend. This could be a viable option if you have a good relationship with the person, you’re not endangering their finances and you’re sure you can pay back the loan in a timely fashion. This option will allow you to avoid paying interest, though it could put your relationship on the line if you aren’t able to repay what you borrow.

2. HELOCs

A home equity line of credit (HELOC) is like a second mortgage that allows you to access a portion of your equity in your home. Ford generally advises against using a HELOC for such purchases, in case the housing market runs into trouble like it did in 2007 and 2008. By adding more debt to your home, you could find yourself owing more than your house is worth. Additionally, if you aren’t able to repay your loan, you could lose your property.

Interest rates for HELOCs typically range from 4.24% to 5.44% if you have good credit. You can expect to pay more if your credit is lower.

3. Credit cards

If you have a high enough credit limit and are confident that you can pay it off on time, you could put your powersport vehicle purchase on a credit card. This idea is especially tempting if you are able to receive rewards points for your purchase. However, if you have a bad track record of making on-time payments, this is a risky decision as it could easily cause you to rack up debt and further damage your credit score.

The interest rate for credit cards may be higher than you can get elsewhere. The average credit card interest rate was 15.32% as of 2018, but your rate could be considerably higher if you have credit challenges.

How do you qualify for a powersport loan when you have bad credit?

Lenders need some kind of assurance they will get paid back before they lend money.

What the lender looks for in your finances

The first thing that most potential lenders do when reviewing your application is pull your credit report. Lenders also look at your income, and they will typically want proof of income, generally in the form of a pay stub and tax returns. If too much of your income is already committed to debt payments, that’s a red flag. Lenders typically want your debt-to-income ratio to be 36% or less.

Getting a loan, especially with low interest rates, is easier if you have a good score. If that’s not the case, however, you should still be able to get credit by showing creditworthiness in another way, such as:

  • Making a down payment: A  substantial down payment can help you get a loan. Ford says that even $500 down could help convince a lender you won’t want your vehicle to be repossessed. The more you put down on a vehicle, the less likely you are to default, because you have more skin in the game. If you make a substantial down payment and you do default, the lender is more likely to be able to recoup what they’re owed when they repossess.
  • Applying for a secured loan: A lender might be more willing to approve you for a secured loan, such as those from the dealership. These tend to be safer for lenders because they allow the lender to repossess the vehicle if you fall behind on they payments. The lender can then sell the vehicle to pay off your loan and other expenses.
  • Improving your credit before applying: Another option is to work on improving your credit score before you apply. Make payments on time, and carefully monitor your credit score, possibly even getting alerts as it changes. As you keep making your payments on time, you should be able to see your score tick up. If you can pay a little extra on your balances, that will help, too.

What the lender needs to know about the powersport vehicle you are financing

When you apply for a loan, the lender will ask you questions about the vehicle you are buying and how it will be used. For example, you will need to be able to answer questions about:

  • The make and model of the vehicle
  • How much the vehicle is worth
  • The model year
  • How many miles it has on it

Powersport loans, terms and rates for bad credit

Regardless of where you get financing, Ford says that any interest rate you get below 12% on a powersport vehicle would be doing really well. “Outrageous would be 18% or more,” she said.

You may be able to get a lower interest rate, for example, with a HELOC or a person-to-person loan. The better your credit, and the more you shop around for a loan, the lower your interest rate should be and the less you’ll likely pay overall.

The bottom line

Powersport vehicles are popular because they represent freedom and thrills in the great outdoors. Financing a powersport vehicle, even if your credit is less than excellent, doesn’t have to be a bad decision. Plan your purchase, make sure you can afford the payments alongside your other expenses and then always, always make your payments on time.

To save even more on interest, make extra payments on your powersport vehicle and pay it off early. You’ll enjoy your powersport vehicle even more when it’s all paid off.

 

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