The depreciation on new motorcycles can be very quick as soon as you drive it away from the showroom
. As a result, as a motorcycle buyer entering a loan agreement you should look for a motorcycle that is in high demand and will have less depreciation than other less popular models. The reason is that if your new motorcycle depreciates faster than you are paying down the principal on your motorcycle loan than you can actually be caught upside down. Upside down means you owe more on your motorcycle than it is worth if you were to sell or trade it in.
An upside down situation is much more likely to happen if you have a motorcycle loan that extends for 60 to 84 months with zero down payments. This is especially true in the first 24 months of your motorcycle loan, because it is likely that your motorcycle is depreciating faster than you are paying down the principal on your loan. Here is some advice to help you avoid being caught upside down in your motorcycle loan.
Make Extra Payments: Always try to make extra payments on your loan. If you make an extra payment put the money towards the principal of your loan. Put Money Down: Always try to put a down payment with your loan. Try to avoid zero down payment loans.
Avoid Rule Of 78: Look for motorcycle loans that use simple interest and avoid loans based on the Rule of 78 interest calculation. Rule of 78 forces you to pay more interest in the early years of your loan so you pay down less principal. If you need to sell or trade in your motorcycle it is likely you will be upside down in a Rule of 78 loans for the first 24 month of the loan. Ask your lender what interest calculation they use. If they say Rule of 78, avoid them. If they say simple interest this is the best option.
Do Not Use A Credit Card: Do not purchase your motorcycle on your credit card unless you have the money to totally pay it off at the end of the month.
Finally, buying things pre-owned typically are always a smarter decision. Why? Once you drive, fly or float anything off the lot it depreciates by 20%. Buying something pre-owned allows the depreciation factor to not be as swift. Also, you have a better chance to cut a great deal.