8 Mistakes to Avoid While Taking a Motorcycle Loan

Owning a new two-wheeler is an exciting experience. However, buying a new motorcycle can be expensive, and not everyone can afford one in cash. Therefore, if you plan to buy your dream bike this December holiday, you will probably need a motorcycle loan.

Getting an online motorcycle loan is one of the most suitable options to secure needed funds when out of savings and a smart way to finance your new ride. A motorcycle loan can help you get a model that is a bit more expensive, even if you don’t have a good credit score or don’t want to make a round-sum payment.

However, since buying a two-wheeler is usually influenced by emotions, people often make mistakes while availing of a motorcycle loan. Here are a few mistakes you should avoid while taking a loan to buy a motorcycle.

Failing to do enough research on the lender

Applying for a motorcycle loan requires thorough research. Homing in on a lender or snapping the readily available finance isn’t the best option. Settling for financing options offered by motorcycle dealers can also be more expensive in some cases.

Therefore, take the time to research different loan options and providers to make an informed decision. Begin by researching disparate lenders and comparing their interest rates, fees, and repayment terms. You should also ensure that the overall reputation and track record of the lender are pristine and that they cover the extra mile in case a borrower is met with some difficulties.

Applying for a loan without understanding the fine print

Another mistake to avoid when taking a motorcycle loan is to apply for credit without fully understanding the terms and conditions stated in the fine print. The loan document is what governs the entire loan, so you should take your time before signing the paperwork. You should also read each line of the document and go through all the clauses governing the loan.

If you cannot understand a certain clause, reach out to the lender and clarify all your doubts. You should also check whether the interest rate offered to you by the lender matches what is stated in the loan document.

While some financial institutions may offer a low-interest rate, this might be compensated by other costs, such as late payment penalties, prepayment penalties, or foreclosure penalties. Check and understand all the fees charged by the lender before you sign the loan document.

Borrowing more than you can afford

The most common mistake among first-time and young buyers is not having a clear sense of how much motorcycle loan they can afford. They usually tend to exceed the borrowing limit to finance higher-end bikes that cost $10,000 to $15,000. Unfortunately, over-borrowing can lead to higher EMIs, and you might need to cut down on essential spending.

Make sure you assess your needs before you apply for a motorcycle loan and only borrow what you can afford to repay in EMIs. Your EMI payments shouldn’t be a burden on your monthly budget. Use an online motorcycle loan EMI calculator to check the amount you need to pay after the loan approval.

Not checking your credit score

Your credit score is one of the vital aspects that the lender considers when reviewing your loan application. Therefore, ignoring your credit score when taking out a motorcycle loan can be a huge mistake.

While you can get a motorcycle with a bad credit score, the lender might impose a hefty interest rate on the money you will be borrowing. The EMIs on the borrowed amount might as well be steep.

A healthy credit score will warrant approval and can help you get a lower interest rate and better loan terms. Therefore, check your credit score before applying for a motorcycle loan and take steps to boost it if necessary. This may include paying your bills on time, checking and disputing errors on your credit report, keeping your credit utilization low, and keeping your old accounts open.

Failing to provide all the required documents

The process of applying for a motorcycle loan involves the collection and submission of a huge amount of paperwork about you. Your loan application can only be approved when you have all the necessary documentation to complete the lending process. You should also submit the paperwork immediately, as the lender may withhold or reject your loan application if the waiting time increases.

While every lender has its unique application process and eligibility criteria, most will ask for similar information. Generally, the documents required for a motorcycle loan application include proof of residence, proof of income, proof of identification, and passport-size photos.

Not putting together a repayment plan

Most borrowers don’t plan for their repayments or usually tend to go for repayment options that have smaller EMI amounts and longer duration. However, just because a loan has a longer repayment period and affordable EMI, it doesn’t mean it will suit your financial needs. Keep in mind that the longer you take to pay off a loan, the more money you will end up paying.

A good repayment plan allows you to stay on top of your lender and clear the debt in the shortest time possible. A perfect loan repayment plan involves setting a budget, prioritizing loan payments, and making extra payments when possible.

Shopping for a bike before knowing the approved loan amount

It might be tempting to choose a bike even before knowing how much the loan amount the lender will approve for the purchase. Moreover, in most cases, a buyer gets influenced by the salesperson’s marketing skills and ends up buying a higher-end two-wheeler.

However, buying a motorcycle that costs $20,000 while the lender most likely will approve $10,000 isn’t a viable option. This will only lead to a debt trap and can raise the maintenance costs for your two-wheeler, including fuel, spares, and insurance.

It’s, therefore, good to get your motorcycle loan approved by the lender before purchasing the bike. Different lenders also offer varying interest rates, which you should take into account before you start shopping for a two-wheeler.

Opting for a zero-down payment motorcycle loan

Applying for a zero-down payment loan can make it easier for first-time buyers or low-income borrowers to buy a new motorcycle. However, since the lender is a business at the end of the day, they might charge a higher interest rate on the money they have offered you, which may cost you more in the long run.

Making a down payment on a motorcycle can help you lower the total loan amount and the interest rate charged over the life of the loan. The general rule of thumb is to put a 10% to 20% down payment on a motorcycle. However, putting more can make you a better risk for lenders if you have bad credit. Therefore, if you want to buy a bike worth $10,000, your down payment should be between $1,000 and $2,000.

Summing it up

Securing a motorcycle loan can be a great way to finance your new bike to explore new places this December holiday. However, taking out any loan is a huge financial decision and should be carefully approached.

Careful proceeding while taking a motorcycle loan can help you eliminate the emotions involved in decision-making and make you less prone to these common mistakes. It will also help you enjoy your new ride smoothly and keep the excitement intact.