Secured Vs. Unsecured Motorcycle Loan: Which is Best for You

If your dream is to own a motorcycle, one of the first decisions to make involves bike financing. Motorcycle financing may either be through cash or a loan. Getting a motorcycle loan is ideal if you don’t have the necessary funds to cover the total cost of the purchase. Motorcycle financing through a loan will allow you to own your dream bike through manageable monthly payments.

One thing to keep in mind is that there are two types of motorcycle loans available, unsecured and secured. The ideal loan for you between the two will depend on several factors. Here is a guide on secured and unsecured loans that will help determine the best for you.

What is a secured motorcycle loan?

A secured motorcycle loan uses the bike as collateral for the loan. If you default on the loan, the lender will repossess the bike. A secured motorcycle loan is ideal for anyone who wishes to buy a new bike from a dealership or manufacturer.

The benefits of a secured motorcycle loan

There are several benefits that a secured motorcycle loan can accrue as you use the bike as security. Here are the topmost:

Improve your overall credit score

If you manage to pay your loan on time and in full, you stand a higher chance of improving your credit score. A good credit rating will make it easier for you to get higher loans at low-interest rates in the future.

Enjoy low-interest rate

One of the main benefits of a secured loan is that it has a lower interest rate than an unsecured motorcycle loan because it is less risky. Therefore, you will pay less for a secured motorcycle loan than for an unsecured one.

Have access to a large loan amount

Lenders will likely avail you of a larger loan than an unsecured loan. The primary reason for the higher loan amount is you can use the bike as collateral. A larger loan amount ensures you can access whichever motorcycle you desire.

Limited need for loan history

Since the motorcycle will act as security, lenders will not focus too much on your loan history. However, they will still look at your ability to make monthly payments. The lenders can ask you to provide proof of your monthly income. Also, if you have low credit, you will still have access to the secured loan but at a higher interest rate than someone with good credit.

What is an unsecured motorcycle loan?

As the name suggests, an unsecured motorcycle loan does not require collateral. In this loan type, the lender will accrue more risk than the secured loan. Therefore, you will have to pay a higher interest rate with this loan.

Lenders will check your repayment history, monthly income, and credit score to determine your eligibility for the loan. Also, unsecured motorcycle loans have a shorter repayment period than secured loans.

The benefits of an unsecured motorcycle loan

Despite the higher interest rates that come with unsecured motorcycle loans, there are several benefits that you can enjoy. Here are the top merits to look forward to:

Allows purchases from private sellers

An unsecured motorcycle loan is ideal if you wish to purchase a used bike from a private seller. It can be from sites like Craiglist or your friends and family. However, most lenders will have several restrictions for private purchases.

There is no chance of motorcycle repossession

For an unsecured motorcycle loan, you will not use the bike as collateral, ensuring that lenders will not repossess it. However, the lack of collateral makes the loans riskier and more expensive than secured loans.

Faster loan approval rate

With unsecured loans, lenders will not need to take time to evaluate the motorcycle. If you qualify for the loan, you can access it much quicker than the secured loan. This will ensure you enjoy your bike as soon as possible.

It helps you to build your credit

A motorcycle loan is similar to a car loan. If you make on-time payments, you stand a higher chance of building your credit. A positive history of on-time payments is essential as it will help boost your overall credit. It means that you will have access to higher loans in the future.

How to determine which loan is best for you

The best choice between a secured and an unsecured loan will depend on several factors. Here are some tips that will help you determine which is suitable for you:

Decide whether you need to use the motorcycle as collateral

The main difference between an unsecured and secured motorcycle loan is the use of the bike as collateral. If you use the bike as collateral, lenders can repossess the bike if you fail to make on-time payments.

Therefore, to determine which bike is best for you, decide whether you are comfortable using the bike as collateral. If yes, the secured motorcycle loan is ideal for you. However, if you do not wish to use your bike as collateral, you can always get an unsecured loan.

Consider the interest rate

Secured motorcycle loans have lower interest rates. The lower the interest rate, the cheaper the entire loan cost. Thus, if you wish to get a cheaper loan go for the secured motorcycle loan.

However, the unsecured loan is ideal if you do not wish to use the bike as collateral and are comfortable with the higher interest rate. Also, an unsecured loan is the best option if you are buying a used motorcycle.

Consider the requirements from lenders

Different lenders have varying requirements for loan eligibility. An essential aspect they consider is whether giving you the loan will be risky. Most lenders will need you to provide proof that you can actually pay the loan.

Also, they will have more requirements in an unsecured loan than in a secured loan. For instance, a secured motorcycle loan often has a longer repayment period than an unsecured one. Therefore, consider the requirements of different lenders when shopping for the best loan for you. Then determine which you are comfortable with getting.

Determine how much you want to borrow

When comparing the ideal loan for you, check the maximum and minimum amounts different lenders offer. Then consider the total cost of the loan. An unsecured motorcycle loan is ideal if you want to borrow a small amount. On the other hand, a secured loan is suitable if you want a higher loan amount.

Final remarks

The choice between a secured or unsecured motorcycle depends on the amount of risk you wish to undertake. A secured loan is best if you are comfortable using your motorcycle as collateral. However, the unsecured motorcycle loan is suitable if you are uncomfortable using the bike for security and can afford to pay the higher interest rate.