Motorcycle Loans - Steps To Prevent You From Being Caught Up
By Jay Fran, Tue Dec 6th
With the depreciation on motorcycles being so enormous afterthey are driven off the showroom floor, the potential for abuyer owing more on their motorcycle loan than the bike is worthit quite high. Owing more on your bike than it is worth is oftenreferred to as the world of "up side down".
Many people finding themselves in this situation discover thatfinancial lessons are sometimes the hardest and most expensiveto learn. Motorcycle loans of more than 48 months (especiallywithout a down payment) put you in the position of owing morethan the value of the bike.
Let's take a look at this phenomenon.
First, the interest calculation your lender uses can make a bigdifference in your situation, especially in the first 18 months.There are two primary interest calculations, pre-computed(combined with rule of 78) and simple interest.
Pre-computed interest combined with Rule of 78, is typically theworst situation for a buyer because most of the interest is paidin the first 24 months. Therefore, in the first 24 months littleof the monthly payment has gone towards paying down principal.If a buyer wishes to sell or trade in the motorcycle within thistimeframe they will likely find themselves owing more than thebike is worth. Statistics show that the average owner trades inevery 18-24 months.
Simple interest on the other hand, is much more favorable forbuyers since interest accrues on the balance of the loan.However, buyers that extend their loans for greater than 48months can still find themselves up side down with simpleinterest. This is especially true if a down payment is not made.The reason this occurs is that the motorcycle depreciates fasterthan the principal is paid; leaving the balance owed to thelender to be more than the bike can be sold for.
A common view that many people have is that they will justsurrender their motorcycle to the lender if they are caught inan "up side down" position. If you are considering this optiondon't! Your worries do not just end after your bike issurrendered or repossessed; in fact they are just beginning. Thelender will sell your bike at an auction for much less than itis worth. You will still owe the difference between the amountyou owed on your loan and the amount the motorcycle sold for atauction. So if you owe $5000 and the bike sells for $1500, youstill are responsible for owing the lender $3500. To make itworse lenders may tack on hefty auction fees which you will oweas well. So the net result is that you are now responsible formaking monthly payments on a bike you can no longer ride.
So what steps can you take to prevent from being caught "up sidedown"?
1. Find a lender that uses simple interest. Avoid lenders thatuse pre-computed / Rule of 78 interest calculations.
2. Always try to put money down on your purchase.
3. Try to avoid motorcycle loans that extend past 36 months.
Copyright (c) 2005, by Jay Fran This article may be freelydistributed as long as the copyright, author's information andthe below active live link with anchored text is published withthe article:
MotorcycleLoans, Bad Credit Motorcycle Loans, Motorcycle Loan Guide
About the author:Jay Fran is a successful author and publisher athttp://www.motorcycle-financing-guide.com. A comprehensiveresource on how to have the best experience and get the bestdeal on motorcycle financing, bad credit motorcycle loans, highrisk motorcycle loans and motorcycle buying.
