What is a secured motorcycle loan?
A secured bike loan works in the same way as a home loan or a secured car loan. Essentially, when you obtain a secured loan, you’re giving the lender permission to use your new asset (in this case, your new motorcycle), as security against the loan. This gives the lender the peace of mind that in the event that you were no longer able to meet your loan repayments, they would be able to repossess the motorbike in order to recover their funds.
In some cases, it is possible to use another asset as security against the loan (like property or a cash deposit), but this is much more uncommon.
What is an unsecured motorcycle loan?
By comparison, an unsecured motorbike loan doesn’t require you to use your motorbike (or any other asset) as security against your loan, and works in the same way as a personal loan or credit card. This makes your loan much riskier in the eyes of the lender because, like with personal loans, in the event that you were unable to meet your repayments, the lender wouldn’t be able to simply repossess the bike. However, in this case you would likely face legal action from the lender, which would be a much messier situation.
Due to the riskier nature of this type of loan, lenders will generally charge a higher interest rate and have stricter lending requirements and criteria.
When should I get an unsecured motorbike loan?
It is generally suitable to obtain an unsecured loan when the bike you’re buying is older and/or used and costs less than $10,000.
Depending on the lender, in some cases a trusted person or family member is able to act as a guarantor for your loan. This means that they would be able to make your loan repayments in the event that you were no longer able to.
While Driva will automatically make the decision between a secured or an unsecured loan for you by automatically matching you to a loan depending on the age of your bike, it is worthwhile understanding the impact of buying an older bike will have on the cost of your loan to inform your bike research.
What are the main advantages of a secured motorcycle loan?
Because you are giving the lender the security that they will be able to recover their funds in the event that you can no longer meet your repayments, there are a number of advantages that are passed on to you.
- Lower fixed interest rate
One of the biggest advantages is that you will receive a much lower fixed interest rate compared with an unsecured loan. Therefore, you will likely end up paying less than if you had financed your new bike with a loan that was not secured.
- Larger loan amount
You can normally secure a larger loan amount with a secured loan. This is because this type of loan is much less risky for your lender as you are providing them with collateral.
- Improve your credit score
Once you have repaid your bike loan in full (and on time!), your credit rating and credit history will improve, making it easier to get future loans and lower interest rates the next time you’re looking to borrow.
Factors to consider when comparing your bike loan options
Before making a decision on which bike you are going to buy, make sure you take the following factors into consideration:
- How much money do I want to spend on my bike?
When you’re comparing your bike loan options, make sure you check the minimum and maximum amounts on offer to make sure that you can borrow the amount you need, and consider what the total cost of the loan will be.
- Do I want to use my motorbike as collateral against the loan?
If you’re wanting to go with a secured motorbike loan, you’ll need to use your motorbike as collateral against the loan. This means if you can’t make your repayments, your lender will be able to repossess the bike.
- Do I want to buy a new or used motorbike?
Deciding between a new and used motorbike might have an impact on whether you can obtain a secured or unsecured loan.
- How much can I afford to pay each month in loan repayments?
Make sure you take into account the interest rate and any fees and charges you’ll need to pay.
- What is the fixed interest rate on this loan?
The interest rate that you’re paying will have a significant effect on the total cost of your loan. Remember - the older the bike, the higher the interest rate. Make sure you look at the comparison rate of each loan, as this will include most of the fees and charges that are included in the loan, making it easier to see the true cost of each loan so you can make an informed decision.
- Am I able to make extra/early repayments?
Make sure you read the terms and conditions carefully to see if your loan offers the option to make extra/early repayments, if this is a consideration for you.
- How long will your loan term be?
All of the interest rates that Driva offers are fixed, which means that the amount you pay each month won’t change over the duration of your loan. Having a fixed rate makes it much easier to budget and plan for the future than if you had a variable interest rate.
Buying a motorcycle is a big commitment and it is important to thoroughly consider all the opportunities available to you. If you decide to finance your purchase with a loan, it is essential that you weigh up the benefits and risks of a secured vs unsecured loan.