If you can afford to pay cash for your next motorcycle, that’s great, but if you need finance, there are a few things you should have done first before falling in love with a bike on the showroom floor.
TYPE OF LOANS
Thankfully financing a bike is a lot easier than financing your house or even your car. Leases and mortgages are rare in the motorcycle industry, so you are probably only dealing with a personal loan, hire purchase or a secured loan. They are all pretty much the same thing with only slight differences and it may depend on where you get the money.
You can get your finance through a bank, financial service such as a broker, loan specialist, credit union or building society, or through the motorcycle company or dealership network. Most motorcycle companies and dealer networks these days offer finance as part of their service. Yamaha Moto Finance (YMF) is factory-owned while most others have a financial services business underwritten by a finance company or bank.
But before you head to the showroom you should check with your bank, credit union or building society to see if they will lend you money for a motorcycle. Some of these institutions are pretty conservative and they may look upon a loan for a motorcycle as a luxury item and risky, which could affect their likelihood to grant you the loan. And because of the risk, they may insist on loan protection insurance to secure the loan.
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Finance seems to make anything affordable and it is easy to over-extend yourself by buying the “up-spec” model when the standard would suit your needs. RACQ spokesman Steve Spalding suggests setting a budget and sticking to it. “Don’t be pressured to accept a finance offer you are not comfortable with,” he says.
Steve also recommends you look beyond the immediate cost of the bike. “Fully consider the full range of ownership costs before committing to a purchase,” he says. That means factoring in financial costs such as depreciation, registration and insurance; running costs such as fuel, tyres and servicing; as well as rider gear.
Do your homework on interest rates charged by the various banks and financial services offering loans. Even a decimal point difference in interest rates can end up changing the final repayment amount by hundreds of dollars.
The good news is that rates are low at the moment and there isn’t a lot of difference between the lenders. But there can be hidden costs, fees and mandatory insurance that is included in the financial package, so do your homework carefully.
You should also do your homework on the value of the new or used bike you are interested in buying. It will help you decide whether the finance deal is reasonable.
If your financial institution is prepared to grant you the loan, you also need to work out how long you want your loan period. A short period will attract higher interest rates and, of course, higher repayments, while a longer period will have a lower interest rate and lower repayments. However, you should also ask to see the final cost of the loan at the end of the loan contract. The longer loan will usually cost you more. In fact, you may be surprised just how much the loan will end up costing you.
Also, remember that the average period of motorcycle ownership is five years, so you don’t want a loan period beyond that. In fact, you may be the sort of person who likes to change your bike every two or three years and trying to sell or trade in a bike that is still covered by finance can be difficult. Not impossible, but difficult. So consider how long you will own the bike and tailor your loan to suit.
If you are a novice rider and are restricted to a LAMS bike, you should keep the loan even shorter as you are more likely to want to trade up as soon as you graduate to an open licence.
Your loan contract may also offer you the opportunity to make repayments in weekly or monthly instalments. It may be easier to pay monthly, but it is usually cheaper in the long term to pay more frequently. Check the final costs of each type of repayment scheme before committing.
Your personal and financial circumstances could change in the next few years and you may need to amend your repayments schedule. For example, you may get a big pay rise or promotion and want to pay off your bike sooner. On the other hand, you could lose your job or work contract and need to lengthen your loan so your repayments are reduced. Check your loan contract to see if there is leeway to lengthen or shorten repayments. If there is, ask if there are any penalty fees for changing the repayments.
One of the advantages of securing finance before you go to the motorcycle dealership is that you will have a sum of money guaranteed and you can go shopping for the best deal as if you have cash burning in your pocket. Sales staff love to do deals on cash and you could successfully haggle a few hundred dollars off the price or get free services or accessories thrown in to sweeten the deal.
Also, if you have a guaranteed loan, you can use the cash to buy from a private owner, rather than a dealership. While there are often price advantages in private sales, there are also greater risks and issues you should consider such as whether the bike is still under finance, who is the rightful owner, the lack of guarantees, etc.
It is a hassle running around the banks and financial institutions trying to work out how much money you want to spend and organising a loan. There are now several online brokers who specialise in motorcycles such as Aussie Bike Loans. You can ring them or apply online. Usually you have to supply a lot of personal information which can be a bit risky these days with identity fraud running rampant. Make sure they are a reputable firm and if you are still worried, make a phone call where you can better handle the supply of personal information than via an online form.
Brokers will do the scouting for you to find the best deal to suit your personal and financial circumstances. However, they charge a commission to the supplier of the finance which is added to your own contract.
CORPORATE AND DEALER FINANCE
Most motorcycle companies have a financial services arm. It may be a wholly owned like YMF, or it may be underwritten by an existing financial institution.
Others offer finance at their dealerships, independent of corporate ownership or partnership.
One-make dealers often offer financial services through the motorcycle company’s financial institution or its third-party partner, while some multi-franchise dealers have their own arrangements with financial institutions.
Getting a loan through your dealer, whether it’s the motorcycle company finance company or their own, makes the whole motorcycle shopping business very easy and convenient. Dealers these days are like a one-stop shop. Once you’ve decided on the bike, they can arrange finance, as well as insurance and all the other legal paperwork that seems to take ages and delay you from that golden moment when you throw your leg over your dream machine.
Some dealers can even take some of the immediate financial pain out of running your bike by including some services, accessories and maybe even rider gear in your financial package. However, remember that you will end up paying more in the long run, so be careful what you include in the loan.
Another advantage of corporate or dealer finance is that they can look at the life of the vehicle and maybe even offer you a guaranteed buy-back price at the end of your loan so you can trade up to a newer model.
Harley-Davidson Financial Services offer a guaranteed buy-back system that takes the financial guesswork out of owning a bike.
Luxury car brands have been doing this for years to build brand loyalty and it is starting to filter through to the motorcycle industry, especially luxury brands such as BMW and top-end models.
However, you should read the fine print on these deals because they load up the final price of the bike and there are usually a lot of conditions. They can include a limit on the number of kilometres you can rack up on your odometer, the accessories you add, modifications, servicing by an approved dealer and, of course, the trade-in condition of your bike.
BMW’s Full Circle Guaranteed Future Value not only offers variable periods from two to four years, but three options at the end of loan term: Sell or trade the bike and take any profit over and above the GFV; hand back the bike and avoid any losses; or refinance and continue ownership.
Some customers may be concerned that it locks them into buying from that dealer and maybe locks them into buying a certain brand. It’s great if you have loyalty to a particular marque, but not if you want to try different brands.
It could also cost more to finance a bike with a guaranteed buy-back price and you could be risking the whole deal if you damage your bike, even slightly.
Some motorcycle companies see these schemes as a way to develop a long-term partnership with their customers. Meanwhile, customers can view it as an essential service that gives them peace of mind.
Another point about corporate or dealer finance that you should be aware of is the attractive rates. Dealer finance can sometimes offer finance at low or even zero interest. That is a sales tool that the banks and financial institutions can’t equal because they have to make money on the interest they charge you. The motorcycle manufacturers or dealers, however, can offer low interest rates because they have control over the final price of the motorcycle. A zero percent loan may look attractive, but you may also pay more for the bike in the long run. Sometimes it’s a genuine low interest rate used as an attractive incentive to push surplus stock, but you should do your sums to work out if the final price really is cheaper or more expensive.
NEW AND USED
While some financial institutions will only offer finance on new bikes, dealers may also offer loans on approved used bikes. Harley-Davidson Financial Services is one such company that offers conventional hire purchase loans on approved genuine pre-owned vehicles. The bikes must come from official Harley dealerships, be Australian compliant, have less than 50,000km on the odo and be under five years old. The advantage is the Harleys also come with a one-year warranty and one-year roadside assistance.
Despite all the homework, you may still blunder your way into a loan that rips you off, or where the contractor fails to fulfil their end of the deal, or where your circumstances change. In the worst case scenario the company could repossess your prized possession!
Before it gets to that stage, if you have a dispute over your loan or insurance, complain to the supplier first as all reputable firms have a complaints department. If you are still not happy, don’t rush off to your solicitor as that can end up costing you a fortune. Instead, go to the Financial Ombudsman Service who offer a free service.