Finance tips


BikePoint's quick finance checklist:

Your options:
1. Regular personal loan
2. Personal loan as an extension of your mortgage
3. Leasing (business use)
4. Credit card (often a good alternative for small amounts).

Remember to ask:
1. What are the total costs, including fees and loan insurance?
2. Am I obliged to comprehensively insure the motorbike?
3. Is there a penalty for early pay-out?
4 . Will more frequent payments lower the interest cost?

The lender will want:
1. Proof of income
2. Evidence of a stable home address
3. Permission to check your credit record

Money for rent
Planning to buy a new toy and ask the bank to help pay for it? No problem - you'll find there are any number of folk out there happy to rent you some money. And that's exactly what a loan is: renting someone else's money.

There are a couple of obvious choices when it comes to getting finance, which are personal loans and lease arrangements. The second is far less common in the motorbike world, however if you can write the machine off as a business expense, this may be an option. We'll discuss it a little later in the story.

Personal loans
Relieving the bank of its money can take a few (legal) forms: credit card, personal loan as an extension of your mortgage, or a straight personal loan.

While credit card interest rates are generally higher than for personal loans, this can still be a good option f you are only borrowing a small amount of money. Why? Because there's no set-up fees, loan insurance, or compulsory comprehensive insurance on the motorbike to contend with. If we're talking a few thousand dollars, and you can pay it off fairly quickly, this is probably the best option.

Personal loans as an extension of your home mortgage can often look attractive because they are generally offered at a lower interest rate. However this only works in your favour if you can pay off the amount fairly promptly. Allowed to run the full term of the mortgage, you'll find the total cost of the loan (including interest) will be high.

So, for most people, a straight-forward personal loan is the way to go. To get one, you need to prove a few basics: that you have a steady income, that you can afford the repayments and that you have a stable address. With income, you'll need to supply proof such as pay slips or, if you're in business for yourself, copies of a recent tax return.

When judging whether you can afford the repayments, the bank will look at all your liabilities, including mortgage or rent, credit cards and other loans. They'll generally have a fixed rule on what this can all add up to, such as 30 per cent of your before-tax income or 25 per cent of your post-tax earnings.

Generally a lender is going to be happier if you are putting in a substantial deposit on the motorcycle, and they're likely to want you to have it covered by comprehensive insurance (which can be a substantial additional cost). Much of this depends on how well they know you. If you happen to have had a few loans with them, and perhaps have paid some of them back early, they are often willing to bend the rules.

Speaking of bending the rules, it's worth knowing that the bank will be looking at your credit record. A history of repaid loans is good, while an unpaid debt or a bankruptcy will definitely throw a spanner in the works.

You'll probably hear the bank talk of secured or unsecured loans. Secured means that the bank effectively puts a mortgage or caveat over the motorbike or something else of value, which means it needs to be insured and you can't sell it without paying out the loan as part of the process. Unsecured (which is preferable, but less common) means you are not required to insure the motorcycle and are free to dispose of it without reference to the bank.

It's well worth shopping around for finance. To work out what's what, all you need are a few details: what are the repayments over how long, what are the set-up fees (if any), how much is the loan insurance (if required), and is comprehensive insurance required on the motorbike? Then all you need to do is add it all up - no rocket science involved.

Keep in mind that some motorcycle manufacturers now offer in-house finance at attractive rates.

A couple of things worth checking are:
1. Whether there is any advantage in making more frequent (i.e. weekly rather than monthly) payment
2. If there is any penalty for paying the loan out early - believe it or not, sometimes there is

Leasing
One advantage with leasing for business use is that you don't need to front up with a deposit. The finance company underwrites the entire cost of the vehicle, and you make regular (usually monthly) payments. When it's time to change over, you'll find you will be left with what's called a residual - or an amount of money you owe the finance company at the end of the lease.

Your choice at that stage is to either pay out the residual so you own the vehicle, sell it and use the proceeds to cover the residual, or trade up and renew the lease along the way. The obvious potential trap is that the used value of the motorbike may not be enough to cover the residual - something to look at before you sign up. Still, this isn't much different to wondering whether the second-hand value of your motorbike is going to be enough to pay out a personal loan.

No tricks
There are no special tricks to getting a loan, however some preparation and research can pay off in the long-run. Good luck with it.

Guy Allen