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Viewing Don't Get Upside Down on your Motorcycle LoanDon't Get Upside Down on your Motorcycle Loan
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With motorcycle finance companies offering loans that extend payments out as far as 72 months, the problem of negative equity is just getting worse. This is even more common with motorcycles that depreciate rapidly. Here is how to avoid the problem. By Gregg Hall When I was in the automotive industry, I saw the extension of car loans going into 54, then 60, then 72 months, and with the extension of the loan installments came the inevitable negative equity. In general, the longer the term you finance for, the more likely you are to find yourself 'upside down'. The motorcycle industry is no stranger to this as well, and recently with the motorcycle finance companies offering loans that extend payments out as far as 72 months, the problem is just getting worse. This is even more common with motorcycles that depreciate rapidly. Just as with automotive loans, when you extend the payments out over more than three years, you begin to put yourself in a situation where your debt exceeds the value of your motorcycle. This is even truer if you do not put money down - or even worse, if you trade in a bike that you still owe on. But how does this happen and what can be done to prevent it? To begin with, you need to look at the way the lender determines the interest. Some lenders use the rule of 78, in which you will be paying almost all interest at the beginning of the loan - and then you have the other more preferable method of simple interest. With an installment plan set up on a rule-of-78 interest calculation, you will be paying almost pure interest for the first couple of years, and therefore will have virtually nothing in the way of equity. When you consider that statistically the average motorcycle owner trades bikes more often than every two years, you can begin to see how this can be a problem. The interest computation of choice is simple interest. As a matter of fact, I personally would accept no other option. The way simple interest works is that it is calculated on the balance of the loan, and if you keep the length of the loan at a reasonable time frame, you will not run into the negative equity problem. If you extend the payments out over more than four years, you will still get yourself in trouble just as you will if you skip payments. If you have found yourself in a negative equity or upside down situation with your motorcycle, don't feel like there is no way out. A lot of people just give up and allow their bikes to be repossessed and sold off at auction, which just exacerbates their problem - now they owe money on a bike that they don't have and can't ride! About the Author: Gregg Hall is a consultant for online and offline businesses and lives in Navarre Florida. Get reviews on motorcycle gear and accessories at http://www.motorcyclegearandaccessories.com. Article Source: 1st Rate Articles - http://1stRateArticles.com |
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