How to Qualify for a Powersport Loan
Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
To qualify for a powersport loan you’ll need to check your credit score and make sure you choose an ATV, Jet Ski, snowmobile or motorcycle that you can afford. Your credit and income are the most important factors in qualifying — a powersport loan is a recreational loan, not a conventional loan, since it provides a way to finance wants rather than needs. Here are the five steps you should take to help you get approved for your best rate possible:
1. Check your credit score
Powersport loans often require higher credit scores than car loans. A FICO score of 719 to 690 is considered good, but 720 and above is considered great. Generally, the higher your credit score, the greater your chance of getting approved for a powersport loan with a low APR.
Check your credit history at AnnualCreditReport.com to be sure that there’s nothing incorrect dragging your score down. We recommend requesting a copy from all three major credit bureaus if you’re planning a large purchase. Free weekly reports are available through April 2021.
- If you do see something that’s incorrect on your report, here’s how to dispute an error on your credit report.
- If you want to bring your credit up a notch, here’s how to make good credit great.
- If you barely have any credit, here’s how to build credit from scratch.
Bad credit powersport loans
Your credit is considered “fair” if your credit score is between 580 and 669, and “poor” if it’s between 300 and 579. While it can be hard to get a bad credit powersport loan, it could still be possible.
2. Set your budget
An important part of qualifying for a powersport loan is making sure you can afford it, so your income is very important. Specifically, there are two important ratios that lenders check to determine if you’re in a position to pay back a loan: your debt-to-income ratio (DTI) and the loan-to-value ratio (LTV). The lower both of these ratios are, the better loan rate you could receive.
Your debt-to-income ratio
This number shows how much you make compared to how much you spend. A good debt-to-income ratio is 36% or less, but some lenders accept DTIs as high as 50%. To calculate your DTI, use the following formula.
Your monthly debt payments include any loan payments, such as student loans, credit card bills, auto loans, alimony and child support. However, the debt payments under consideration do not include utilities, groceries, rent or mortgage — while it may seem counterintuitive, powersport lenders generally don’t include debts like mortgage or rent in their DTI calculations.
For example: You make $5,000 a month gross and pay $500 on a car loan, $300 on student loans and $1,000 on credit card debt each month: ($500 + $300 + $1,000) / $5,000 = .36
If your DTI is above 36%, consider paying down other debt before taking on debt in the form of an ATV loan, Jet Ski financing or other powersport loan. Here’s information on how to pay off debt faster.
Your loan-to-value ratio
The LTV shows how much you’re borrowing versus how much the vehicle is worth. To a lender, an LTV greater than 100% is risky. It usually means no down payment by the buyer who also may have financed taxes and fees.
Lenders do offer zero down payment loan options occasionally, but they also usually require borrowers to have great credit (a score of 740 or higher). A high LTV is also risky to you, since taking a loan worth more than the vehicle is worth puts you at risk of being underwater on your loan. Traditionally, lenders like to see an LTV of 80%, meaning that you should plan to put down at least a 20% down payment.
You can improve your LTV by getting a good deal on the price of the powersport vehicle you plan to buy. For example, if you pay less for a Jet Ski than it’s worth, you’re already on your way to an LTV less than 100%. To know what a vehicle is actually worth though, use an industry guide like Kelley Blue Book and NADAguides. Both are free to use online and offer market values of powersports equipment such as ATVs, snowmobiles and Jet Skis, among others.
3. Window shop with a calculator
To get a better idea of what you want and how much it costs, shop online. Use our ATV loan calculator to see what your payments might be. Keep in mind that a good deal on price could help you to get a better deal on the loan.
A lender will look at:
- The year, make and model of the vehicle
- The vehicle’s mileage
- The vehicle’s value
You should note that there’s a trade-off between the age of the powersport equipment and the APR you could get. You’re likely to get a better rate on a new recreational vehicle. However, if you find a great deal on the price of a used vehicle, that could more than compensate for a slightly higher loan rate.
4. Gather your documents
To qualify for a powersport loan, you’ll need to have information and documents ready.
- Identification. You should be ready to show a government-issued ID such as your driver’s license.
- Proof of residence. Your driver’s license may be used for this, but if you recently moved, the lender may ask for a utility bill or a bank statement dated within 30 days and that shows your name and your residential address. You cannot use a P.O. box.
- Proof of income. The lender may ask to see your last two paycheck stubs. If you’re self-employed or a freelancer, a tax form such as the 1099 Form or several months of bank statements showing income could suffice.
- Cosigner details. If you have a cosigner for the loan, they should gather all of the above documents, too.
5. Apply for a powersport loan
When we say “apply for a loan” we don’t mean “go to a dealership.” Dealerships, whether they’re car dealers or powersport dealers, can function as loan brokers — meaning they don’t lend you the money, but instead act as a middleman between you and the lenders. As the middleman, they can often raise a customer’s APR, so it’s extremely important to get a loan approval directly from a lender before you go to a dealer.
See what rates lenders are advertising and what lenders offer powersports loans. Potential lenders could include your local credit union or national bank. You can read more on the types of powersport loans.
Powersport loan FAQs
What does APR stand for?
APR stands for annual percentage rate. It’s an interest rate that expresses the cost of credit, including interest and fees.
What is a good APR for a loan?
The lower the APR, the better. But the exact APR you may receive depends on your credit, income, down payment and more.
How long is 72 months?
A term of 72 months is six years. Lenders often describe loan terms in months rather than years because the number of months is usually the same as the number of required payments.
What is a good credit score?
A “good” credit score is a FICO score of 670 to 739.