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Motorcycle Refinancing: How Does it Work?

We’ve heard about refinancing car loans, and you may wonder if it’s possible with motorcycles, too. The answer is yes. Does it work the same way as when you refinance a car loan? The answer to that question is yes, too. Let’s go over the details, the how-to’s, and a list of things to consider before motorcycle refinancing. 

First, what is refinancing?

When you refinance a loan, you take a second loan to pay off an old one. The new lender will be covering the balance of your previous loan. That sounds like a great idea. Maybe. Maybe not. And that depends on a few factors.

It will help if you establish why you want a motorcycle refinance first. Are your monthly payments too steep? Has the household income decreased? Or maybe your credit score changed significantly. Regardless, it’s essential to figure this out first, as it will be the basis of your decision when faced with options down the road.

When is it a good idea to refinance a motorcycle loan?

Your credit score has improved

A good credit score equals better interest rates. Suppose your credit score has increased significantly over the past years. In that case, it might be a good idea to refinance your loan, as there is a good chance that you can take another one with lower interest rates.

You want to lower your monthly payments

If your current monthly payments are too steep for you, refinancing can help lengthen your loan. This will make it easier for you to meet your monthly repayments. However, note that the longer you pay for the loan, the longer you pay the interest. So over the long term, you’ll probably shell out more money.

You are interested in getting a better deal

If you feel like you did not get a good deal with your current lender, refinancing will be the other option to cut a better deal. Your lender can’t change your interest rate on your existing loan. Finding a lender that can offer a better deal would be your best bet.

The savings outweigh the cost of refinancing

Say you’ve sifted through your options and found a lender that can refinance your loan. If the savings you’ll get from refinancing the motorcycle loan is higher than the expenses with refinancing — application fees, exit fees, and other fees — it might be worth it. 

How do you refinance a motorcycle loan?

Step 1: Talk to your current lender

To refinance your motorcycle loan, your payments to your current lender must be up-to-date. Your prospective lender will need to know how much the “payoff amount” is — or the amount you still owe your current lender. The payoff amount that your current lender will give you will probably be valid for a set period, usually two weeks. Take note that your current lender might charge you an early payoff fee. In contrast, your second lender may charge refinancing or application fees. 

It is also best to assess the value of your motorcycle at the time of refinancing. If you owe more money than the value of your bike, chances are you will be tagged as a “higher risk” borrower by lenders. This may make it harder for you to get a loan.

Step 2: Go through every option

Now that you know the amount you need to borrow, it’s time to compare the rates offered by different lenders. Every lender has a set of requirements and offerings. Assess how they compare to what you are currently paying. The rates will, of course, also vary depending on your credit score and the age and make of your motorcycle. Your decision will ultimately depend on why you are considering a motorcycle refinance in the first place. So, compare the quotes against your criteria. 

Aside from comparing rates and fees, you must also consider the total amount you will be paying over the life of the loan.

Step 3: Check your credit score

It is best to check your credit score beforehand to avoid any surprises. An excellent credit score can land you lower interest rates. But, even if your credit score is not as stellar as you wish, it is still possible to get lower interest rates if the current market conditions are better than when you took your first loan. You can still get approved for refinancing with a bad credit score, but you can expect higher interest rates. 

Upon application for refinancing, the new lender will request a “hard inquiry” for your credit report. This will impact your credit score, but it will bounce back. So, knowing your credit score before applying for refinancing is essential.

Step 4: Get your documents ready and apply for refinancing

You can apply quickly if you’ve gathered enough information beforehand — vehicle ID, motorcycle make, value, and insurance information. Prepare your driver’s license, most recent payslips, and up-to-date bank statements. 

Suppose your documents are complete and loan information is sufficient. In that case, you can expect the new loan to be finalized on the day.

Final Thoughts 

A motorcycle refinance could be a viable option if you are looking to lower your monthly payments, cut a better deal with another lender, or if your credit score has significantly improved in recent years. Refinancing is worth considering if it can potentially organize your finances better and save you money in the long run.

Our expert lending team can give you more information regarding your options and can guide you through this important decision-making process. Contact us today, and our friendly staff will be happy to assist you.

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