Auto loans and motorcycle loans are similar loans used to finance vehicles–the main difference between them really comes down to how much the respective vehicles cost, and what lender you borrow from.
The following are the three most common ways motorcycles and cars are financed, any of which different lenders may refer to as “auto loans” or “motorcycle loans” :
Manufacturer or dealership financing
Manufacturer financing means that the company who makes the vehicle, such as Harley-Davidson or Honda, offers their customer a loan to finance the vehicle rather than buying it outright. The loans manufacturers and dealers tend to offer are secured loans, with the purchased vehicle being used as collateral. If the borrower fails to make the agreed-upon payments, the vehicle can be repossessed by the lender.
Car dealerships and manufacturers may also offer this type of financing, but there is a much larger market for auto loans that traditional lenders also compete in.
The main drawback to this type of financing is that the funds can only be used to finance the vehicle itself, and you’re limited to what the manufacturer or dealer offers.
Traditional lenders such as banks, online lenders, and financial institutions offer specialty loans that they may market as motorcycle loans or auto loans. These specialty loans are often secured loans that use the financed vehicle or another asset as collateral. Some lenders require down payments for auto loans, but it’s not as common to require down payments with motorcycle loans because the loans tend to be smaller amounts as motorcycles are generally less expensive.
However, some specialty loans are unsecured loans, which often don’t require any down payment or collateral for the loan. Their interest rates are usually higher than secured loans, and the borrower’s income and credit score are major factors in determining interest rates and eligibility.
Secured or unsecured, specialty motorcycle and auto loans may come with limitations for what sort of vehicle can be financed. For example, some specialty loans only finance new vehicles.
Many traditional lenders also offer unsecured personal loans which are commonly used to finance motorcycles. Given the limitations in how much one can borrow with a personal loan, it’s not as common to see someone using a personal loan to finance a vehicle, but it’s also possible to use a personal loan to finance a vehicle.
Many personal loans also do not require downpayments and the approval process to get a personal loan is relatively fast, which entices many people to use personal loans to finance motorcycles.
One key advantage of a personal loan is flexibility–its funds can be used for absolutely anything from the vehicle itself to gas, insurance, and maintenance.
The bottom line
Although different lenders use “motorcycle loans” and “auto loans” to describe different products, the parallels between motorcycle loans and auto loans are similar. The difference between the two really comes down to the amount of the loan. The larger the financing need, the more you may have to put down initially, and the longer it will take to pay off. Smaller financing needs come with more flexibility and options. In any case, there’s an ever-growing competitive market, so be sure to explore your options with lenders you can trust.