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The average motorcycle costs between $5,000 and $10,000, and for a high-end bike, you could end up paying as much as $30,000 or more. It’s common to take out a motorcycle loan to cover such a large purchase. And down the line, if monthly payments become unmanageable or you think you may be able to secure a lower interest rate, it’s possible to refinance the loan. There are a number of steps you’ll want to consider before you refinance, and make sure that you’ve done your due diligence, reviewing all options before you make a choice.
Can You Refinance a Motorcycle?
Refinancing your auto loan or home mortgage is likely a familiar concept for you. You may not realize that you can also refinance your motorcycle loan. When you refinance your loan, you take out a new loan — preferably one with lower interest rates or more manageable terms — and use it to pay off your old loan. You then begin to make monthly payments on your new, refinanced loan.
Steps for Refinancing a Motorcycle
1. Determine the Remaining Balance of Your Motorcycle Loan
Your first step is to figure out how much money you still owe on your original motorcycle loan. This amount will give you an idea of how large your refinance loan will be. The easiest way to find your balance may be by contacting your lender directly. You may also be able to find the amount on recent loan statements. Once you know how much you need to borrow, you can start comparing lenders.
2. Compare Lenders
Terms and interest rates will vary by lender, so it pays to shop around for a few different options. What’s more, lenders will also have different requirements for factors such as credit score. In general, the higher your credit score, the more likely you will be able to secure a loan with favorable terms and interest rates. The lower your score, the harder it may be to secure a loan. If you have poor credit, it may still be possible to find a lender that will offer you a loan. However, the loan may come with contingencies, such as high interest rates, to help compensate the lender for the risk they assume by offering you a loan.
3. Determine Requirements to Refinance a Motorcycle
You may need additional documents and information to further the loan process along. Gather these ahead of time to speed the process and save potential headaches. You'll need your vehicle identification number (VIN), and the make and model of your bike. You may also need your bike’s insurance information, recent tax returns, employer information, and in some cases you may need documentation of your motorcycle's value.
4. Apply to Refinance a Motorcycle
With documentation in hand, you can begin to apply to refinance your vehicle loan. You may want to apply to a few different lenders to see what terms and interest you’re offered. Consider local options, including credit unions, as well as national lenders. Applying for a loan will likely have a slight negative impact on your credit score. That said, applying for multiple loans doesn’t hurt your score any more than applying for just one loan as long as you do so within a 14-day period. The major credit reporting bureaus — TransUnion, Equifax, and Experian — allow this window so consumers aren’t penalized for shopping around for the best loan.
5. Negotiate Terms and Rates
It never hurts to advocate for yourself. Armed with research on what various lenders are willing to offer, you can approach a bank, credit union, or online lender and negotiate terms and interest rates on a refinanced loan. Borrowers with higher credit scores will likely be in the best position to negotiate.
6. Payoff Remaining Motorcycle Loan Balance
Once you’re approved for a refinance loan, you’ll pay off the remaining balance on your old loan and begin the process of paying off your new loan. One thing to be aware of is the possibility of prepayment penalties. Lenders make money on loans by charging interest. When you pay off a loan early, you’re no longer making those interest payments. To make up for this lost revenue, lenders may charge fees when you pay off your loan ahead of schedule. Check the fine print on your loan agreement to see if prepayment penalties apply and, if so, whether they negate the positive effects of refinancing your loan in the first place.
Is Refinancing a Motorcycle a Long Process?
Refinancing a motorcycle is not necessarily a lengthy process, especially if you’ve prepared ahead of time. Once you apply for a loan, you can expect the approval process to take two weeks.
When Is Refinancing a Motorcycle Worth It?
You may consider refinancing a motorcycle loan for two reasons. First, if interest rates have dropped or your credit score has improved, you may be able to secure a new loan with lower interest rates. This will save you money in the long run. In some cases, you may want to lower your monthly payments. One strategy for doing so is extending your term with a refinance. Note that when you extend your terms, your monthly payments may become more manageable, however, you will be paying interest for longer. This may make this option more expensive in the long run.Conversely, if you can afford a higher payment, shortening your term may mean a more expensive monthly bill, but you’ll pay less in interest, ultimately resulting in savings over time. Be sure you understand the costs and fees associated with a refinance, such as prepayment penalties and origination fees. If they outweigh potential savings, the refinancing process may not be worth it.
Refinancing a Motorcycle
When refinancing a motorcycle, as with an auto loan refinance, it’s important to do your due diligence and shop around for the lender that will provide the best fit for your situation. Choosing the best terms and interest rate can ultimately save you a lot of money in the future. If a motorcycle isn’t the only thing you’re looking to refinance, check out Lantern’s auto loan refinancing comparison tool. It allows you to compare rates among top lenders easily and prequalify for loans in minutes. Simply checking your rates doesn’t trigger any application fees, and once you’ve chosen a loan, the lender will take care of paying off your old lender and re-titling your vehicle.
Frequently Asked Questions
How Can You Refinance a Used Motorcycle?
How Long Does Refinancing a Motorcycle Take?
What Credit Score Do You Need to Refinance a Motorcycle?
Photo credit: iStock/EmirMemedovski
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About the Author
Austin Kilham
Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
