The Ultimate Guide for Motorcycle Financing in Canada: 2023 Edition

· Buyers Guide

So you're in the market for a new-to-you motorcycle and may be considering getting a loan to finance it versus buying it outright. Luckily for you, in Canada there are a number of fantastic options that will present themselves to you. In fact, it could seem that there are simply too many options to know which dealers or lenders are giving you the best advice. This article is intended to give you the head start so that you can lock in your loan with confidence.

Should I finance a motorcycle or just buy it outright?

The answer to this varies by the individual and their specific situation. Financing a ride can ease the burden of taking on a purchase all at once while also building some credit with the right lenders. If you have the funds readily available and it won't affect your day-to-day, it is advisable in almost any case to not take on any debt load. Many are not in that situation and are better suited to making affordable payments with the same end goal in mind. With that in mind, it is important to ensure that the lender is reputable. More to come on that subject is below.

What Credit Score Do I Need to Financing a Motorcycle in Canada?

In Canada there are options to finance a motorcycle with nearly any credit score. In fact, this number is not the sole factor taken into consideration when offering an approval. Many people with a higher credit score might be surprised to get an approval that is not at a prime rate. Whether you have good or bad credit, getting a second opinion is crucial to ensure you get the best rates avialable. There are dealer brokers out there with access to multiple lenders; your best bet is to find one that will limit the number of credit checks they perform and who doesn't get paid for selling you at a higher interest rate.

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Whats the Difference Between a Secured Asset Loan and an Unsecured Loan?

As we previously mentioned, there are several lending options when it comes to locking in a motorcycle loan. If you are a premium customer with flawless credit, the best option to look for is an unsecured loan. These are primarily offered by Canada's biggest banks and are essentially structured as either a line of credit or a cash loan. While this is the best option, it is also the hardest to lock in as it requires near-perfect credit and limited outstanding debt. Keep in mind that, while this loan isn't necessarily using your motorcycle to secure the loan, they may still have the right to repossess it in the event of default as they would with any of your assets.

As such, most motorcycle and recreational loan options are offered as secured loans in which they use the asset you are financing as collateral. One advantage of a secured loan is that typically the lenders will offer a pre-approval so you know your rates, limits, and conditions ahead of time. Another advantage that is beneficial to the buyer is that most secured loans require the unit to have proper book valuation to meet the criteria of approval. If a unit does not meet book value, they will likely require a down payment or even suggest you find another option entirely. Keep in mind that book value is not equal to market value, the difference is explained below.

So what is the difference between book value and market value?

This is actually fairly simple. "Blue Book" sets a valuation that is consistent across the board for every year, make, and model of a motorcycle going back multiple decades. This valuation is used by insurance companies and lenders to assess a basic guideline for coverage. Valuations are typically broken down into three categories including "clean" (low miles and/or no damage), "average" (some miles or maybe minor damage), and "rough" (high miles or some flaws noted). Typically markets will ebb and flow as far as prices go, but blue book values will remain consistent with depreciation quarterly throughout the years. Bluebook value will never take into account any upgrades or add-ons and will almost always be under true market value.

Speaking of "market value", this is the number that is an actual indication of market pricing based on comparables. This pricing is extremely volatile and moves as units increase or decrease in demand and availability. It also typically takes into consideration upgrades and add-ons. That being said, most lenders do not consider these upgrades as significant and typically do not consider any labour costs involved at all when it comes to valuation. The current "market value" of a unit is usually decided by the lender or insurer at the exact time of inquiry.

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What are the Differences Between a Motorcycle Loan and an Automobile Loan?

When people are looking to finance a motorcycle, they typically compare it to their experience when purchasing an automobile. While there are definitely crossovers from one to the other, there are some dramatic differences as well. Firstly, and most importantly, a motorcycle is not considered "essential" for day-to-day, especially in Canada where riding is seasonal in most places. With this comes increased risk for lenders as one might not maintain a motorcycle as they would their daily commuter vehicle. This added risk is the main reason you'll see that interest rates are 3-5% higher at the lowest point, which the exception to some manufacturer financing as explained below.

What is Manufacturer Financing and How is it Different?

Manufacturer financing may be offered by OEM chain dealerships, typically on brand-new units, as a way of enticing people to finance directly with them. The rates are usually better than what you will find through private lenders and they may also include incentives such as cashback or no payments for some time.

Pros of manufacturer's financing:

- If you're 100% locked in on buying new, you'll likely find the best rates.

- You can usually get some kickbacks such as cash back, zero down, or no payment plans.

- You might be able to haggle the rate. Some OEMs will offer incentives for their sales team to sell at a higher rate. If the sales team thinks you're walking away, they might lure you in with an even better "one-time" approval.

Cons of manufacturer's financing:

- Your selection is limited to that manufacturer solely and typically only new units.

- You still need to qualify for the best rates. If you do not, you may end up getting a worse rate than what a private lender would've offered. Most OEM dealers won't offer options outside of the manufacturer's financing unless you're declined entirely by their program.

- Pressure sales are typically high as the team may get incentivized to sell you at a higher rate. They might have a quota to hit as well which harnesses overenthusiastic sales tactics.

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How Can I Avoid Loans with Penatlies for Early Payments?

We highly suggest you only deal with reputable lenders that state explicitly in their agreement that they accept early payments and that there are no penalties for early buyout. This is usually labeled in your agreement under a "prepayment" section.

Should I Consider Leasing vs Financing a Motorcycle?

In many cases, one might consider leasing versus financing. Our opinion is that leases tend to be cannibalistic and we would suggest steering clear. The prime advantage of leasing a vehicle is the ability to trade in as well as Canadian business tax exemptions. Unfortunately, in Canada, a motorcycle or any recreational vehicle can be extremely hard to pass off as a necessity for work. Some less-honorable lending firms can tie customers into conditions with serious negative implications. Some may require that the entire amount of interest be paid in full and added to the sales price. Others may have severe prepayment penalties which make trading in for a new model year nearly impossible. Further detractors include harsh restrictions on mileage, limits to customizations, and terms that end in a balance still owed.

When you finance a motorcycle, you essentially co-own the ride with the lender until it has been paid off. All financing terms are paid until a zero balance is owed at which time the lien is released and ownership is transferred solely to the buyer. In the meantime, you're generally free to upgrade and customize so long as it is adding value. These loans also come without mileage restrictions. In Canada, reputable lenders will always allow early payment as well so you can save huge on the interest paid. Finally, you might not actually be saving as much as you think when you do the math. Here is a video that breaks down the mathematics behind leasing versus buying a vehicle.

Will a Co-Signor Help Secure a Better Loan?

In some cases, a co-signor can help you get approved with a lender who would otherwise decline you. In most instances, however, if you have approval already - adding a cosigner won't aid in getting you a better rate. This is due to most lenders using the worst credit situation when offering approvals. Furthermore, for secured recreational loans in Canada, most lenders will only allow a common-law or spouse to be added as a co-applicant. The reason for this is that the asset serves as collateral for the loan. If repossession is necessary, it can be challenging to take possession of a unit that is co-owned by multiple individuals, as opposed to one that is owned by either partner in a common-law or marital relationship.

Will a Loan Help my Credit Score?

Certain recreational lenders in Canada do report to either Equifax or TransUnion. With these lenders, a series of positive recurring payments can give a boost to your credit score provided that there aren't other items lowering it at the same time. Keep in mind that the initial result upon taking a loan might be a slightly lower score as debt ratio increases. Inquire with the lender or dealer that you are working with to learn about their lenders reporting habits.

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Taking these tips into consideration along with common sense will go a long way to ensure you're getting the best loan option available. Be sure to read your contracts and understand your payment amount, frequency and term length for your loan. Also make certain you understand the fees involved as lenders and dealers do typically charge admin or doc fees. Do your diligence and be sure to ask as many questions as you feel you need to be comfortable with the terms. Remember that it is the dealer or lenders job to ensure you are confident in your loan choice. Happy shopping!