Difference between secured and unsecured loans for buying a motorcycle:
It usually happens that the motorcycle you want to purchase is out of your financial capacity. In such a case a motorcycle loan could be ideal for purchasing your desired motorcycle. Think carefully and take your loan and payment plan according to your income. Take a loan plan that is flexible and easily manageable. Two types of loans are available: the first one is secured and the other one is an unsecured loan.
Secured loan
A secured loan requires collateral. To take a secured motorcycle loan requires collateral and that collateral will be your motorcycle itself. If you default the lender will seize your motorcycle to recover their outstanding debt. Buying a motorcycle from a dealership or manufacturer-secured motorcycle loan would be the ideal choice.
Advantages of secured motorcycle loan.
1. Lower interest rate: A secured motorcycle loan offers a lower interest rate which helps you to save money by reducing the overall cost of the loan and makes the payment method easier.
2. Large loan amount: When you go for a secured loan lender will use the motorcycle you are buying as collateral and may offer you a large loan amount. It will be very helpful for you if you are looking to purchase a high-end motorcycle.
3. Improves credit score: If you pay back the loan on time by maintaining their terms and conditions your credit score will increase. With a good credit score, the chance is always high to get approved for your next loan with a larger loan amount at a low interest rate.
4. Longer repayment: Since the lender has your motorcycle as collateral you get the benefit of repaying the loan over a longer period. Your loan will be more manageable to repay a small amount every month.
Disadvantages of secured motorcycle loan.
It is very normal that, if there are advantages, there will be disadvantages also. Secured motorcycle loans also have some drawbacks as well.
1. High broker fees: You may need to hire a broker to avail a secured loan. To find the best deal when you need help from an experienced, reliable, and professional broker, you have to pay an extra fee for that.
2. Risk of taking possession: Science your motorcycle will act as collateral if you do not keep repaying the loan you have taken and if the loan defaults, the lender will take possession of your motorcycle.
3. More interest: If you want a quicker repayment term it will be a disadvantage to be in debt for a long period. Secured loans run for a long term and that reduces monthly repayment in rustling eventually you have to pay more interest.
Unsecured loan- This loan system does not require any collateral. Getting an unsecured loan normally depends on your credit score and proof of income.
Advantages of unsecured motorcycle loan.
1. No collateral: You don’t need any collateral for getting an unsecured loan. That means if you default on the loan there is no chance to take possession of your motorcycle by the lender.
2. Quick approval: If your credit score and proof of income meet their requirements and you qualify for the loan you will get the loan quicker than a secured loan. There is no hassle of collateral here like a secured loan and for that loan processing takes less time.
3. Improves credit score: As like, secured loan payment on time will increase your credit score and will also make it easier to get approved for your next loan.
4. Shorter repayment: Unsecured motorcycle loans usually offer shorter payment terms than secured loans. You can pay off this loan faster. You can get out of debt within a short period compared to a secured loan.
Disadvantages of unsecured motorcycle loan.
1. Higher interest rate: As the lender does not take any collateral for this loan it becomes a little more risky for the lender to provide this type of loan. As a result, it requires higher interest to pay.
2. Lower amount: Being an unsecured loan you will get a lower amount of loan and it will limit your option to going for a more expensive motorcycle.
3. Tough to qualify: Getting approved for an unsecured loan depends on your proof of income credit score and history. If everything is in order you should not face any difficulties in getting approved for the loan otherwise the chances of approval for the loan are very low. Indeed if you get the loan you have to pay off the credit with moderately higher interest.
Which would be an ideal choice?
First of all, I’m not suggesting anything because the ability, situation, thoughts, and choice may not be the same for everyone. Taking a loan to buy a motorcycle has both pros and cons. However, you should take the loan by understanding which one seems favorable to you according to your eligibility and ability to repay the loan. I’m riding the third motorcycle of my 14 years riding career but I personally never took any loan till now. An uncle of mine took a secured loan and he is a cloth merchant. When he took the loan his business was doing well but suddenly there was a downturn in the business due to which he could not repay the loan on time resulting in his lender having taken possession of his motorcycle.
Both secured and unsecured loans have been discussed above. Compare them and carefully determine which one fits you according to your needs, financial situation, and risk tolerance capability.