Motorcycle financing is a specific form of loan for the purchase of a motorcycle or scooter, whether new, used or zero kilometers, which requires deferred payment of the price, in monthly installments.
The motorcycle loan is available on the market in general with durations from 12 to 60 months, at a fixed and variable rate, with a maximum amount limited to around 30,000 USD which can cover up to 100% of the purchase price of the motorcycle. The interest rates applied are generally lower than normal consumer credit since the repayment of the debt is guaranteed by the motorcycle which being a registered movable asset can be subject to foreclosure.
Being a finalized loan it can be proposed directly by the concessionaire, by virtue of the agreement stipulated with a financial institution. In this case, the dealer, against a commission for the procurement of customers from the bank, offers the customer financing and manages the entire procedure, from the collection of documents up to the approval of the credit.
Once the loan has been approved, the finance company pays the agreed amount to the concessionaire, while the applicant who purchased the vehicle makes the installment payment according to the agreed amortization plan.
Therefore, the customer does not have the sum of the motorcycle loan; this is paid directly to the dealer. The applicant simply takes out the motorcycle loan and repays the monthly installments.
Motorcycle personal loan
The request for financing in the dealership has advantages and disadvantages: on the one hand it can facilitate a greater discount on the purchase price, by virtue of the commission collected by the dealer. On the other hand, it does not allow the comparison of multiple financing products and the consequent choice of the most convenient loan, that is, with the lowest APR.
This is because the dealer has in most cases an exclusive agreement with a single financial company.
Alternatively, the motorcycle loan can be signed by the applicant independently with a bank or a trusted financial company before purchasing the motorcycle. In this case, the applicant receives the sum agreed by the credit institution on his current account and then proceeds to balance the purchase price with the motorcycle dealer.
Choosing the loan independently allows the applicant to compare several financing offers and to choose the most convenient one, for example with the lower APR. Also in this case the applicant can freely dispose of the sum received on loan, for example by associating the purchase of the motorbike with the accessory costs (transfer of ownership, stamp duty, insurance) or other needs for family liquidity.
Obtaining a motorbike loan requires the normal guarantees provided by consumer credit or the availability of a continuous and reliable monthly income to repay the debt installments and a good creditworthiness. In fact, even in finalized loans, the data are checked at the risk center : any negative reports lead the financial company not to grant any loan.
To limit the risk of insolvency, credit institutions often ask for the signature of a co-obligee or a third-party guarantor to guarantee the success of the transaction. This is a fairly common request, in the presence of particular conditions (such as for example an applicant with a recent working seniority or for a particularly high amount).
The elements of the contract
The law states that a motorcycle loan contract must contain the following elements:
- the interest rate applied;
- any other prices and conditions applied, including higher charges in the event of late payment;
- the amount and method of financing;
- the number, amounts and due dates of the individual installments;
- the annual percentage rate of charge (APR);
- the detail of the analytical conditions according to which the APR can possibly be modified;
- the amount and reason for the charges that are excluded from the calculation of the APR;
- any guarantees required;
- any insurance coverage required and not included in the APR calculation.
Failure to pay an installment
The interruption of the repayment of the loan implies the immediate default towards the lender and the risk of unpleasant consequences:
- the interest due would be increased, with the application of a late payment;
- there is a risk that your name will be included in the list of late payers and / or reported to the credit protection bodies (the Central Credit Register), which will share the information with the entire banking and financial system. The result will be a worsening of the customer’s creditworthiness and a consequent greater difficulty in obtaining credit in the future.
Failure to punctually pay even one installment authorizes the lender to unilaterally terminate the contract. The customer will be required to pay all bank and protest charges as well as all the costs incurred by the Institute to recover the sums due, in addition to a possible penalty.
The law guarantees the consumer the possibility of carrying out the early repayment of the loan. If the consumer decides to choose this option, in addition to the reimbursement of the residual capital, he could pay a penalty that must not exceed, by law, 1% of the financed capital; the exact terms of the penalty are shown in the contractual conditions signed.
Criteria for the first home loan.
Below we schematically illustrate some specific evaluation criteria of the first home loan.
- Risk policies : each Institute applies its own risk policy in evaluating requests, based on the statistical data it possesses (credit scoring). These data constitute the tool that allows the Institute to keep insolvencies below a certain level.
- Income level : the acceptance of requests is normally also subject to the appraisal of the applicant’s level of income and the relationship between the latter and any repayment installment.
- Credit reliability : the creditworthiness of the applicant is of great importance. It is important to stress that this assessment has no “moral” meaning. The Institutes merely estimate the level of risk associated with each request, also on the basis of the indications transmitted by the Risk Centers. If the applicant’s credit history has some “flaws” (delays in repayments of previous loans, outstanding, etc.), the probability that the request will be accepted is obviously lower. In some of these cases, a valid alternative is constituted by the Transfer of the fifth: this solution, by offering the appropriate guarantees to the lender, allows the adoption of more flexible evaluation criteria.
The economic conditions
When choosing between several financing offers, it is good to consider the overall cost of each loan, without limiting itself to the evaluation of the monthly installment only. However, this is not a simple operation since the expense items of a loan can be numerous (amount disbursed, interest, ancillary charges, any initial expenses, insurance costs) and are not easily measurable immediately.
In general, the elements that should be considered before signing a loan agreement are:
- TAN (Nominal Annual Rate) : represents the interest rate, expressed as a percentage and on an annual basis, applied to the financed capital (sometimes gross of any insurance costs or preliminary costs). It is used to calculate, starting from the amount financed and the duration of the loan, the portion of interest which will be paid to the lending institution and which, added to the principal, will determine the repayment installment.
In our section dedicated to the calculation tools, you can calculate the amount of the monthly installment and the total interest expense by indicating the main characteristics of the loan you intend to apply for.
- APR (Annual Global Effective Rate) : is a measure, expressed in percentage terms, with two decimal places and on an annual basis, of the total cost of the loan. Unlike the TAN, the APR is inclusive of any ancillary charges such as preliminary costs and insurance costs, which are charged to the customer.
However, the Italian legislation allows, under certain conditions, a certain discretion, excluding or including some items in the calculation of the APR: insurance costs, for example, if optional, can be excluded from the calculation. So pay attention and carefully consider your overall expenditure, analyzing each time the items of the offer that is proposed to you.
In our section dedicated to calculation tools, you can calculate the APR of the loan and compare loans with different characteristics, and easily establish which is the financing with the most advantageous economic conditions.