Interest rates have been dominating the news headlines in 2022 as the Federal Reserve Bank attempts to slow the pace of rising inflation. There have been several interest rate hikes, with more expected throughout the coming year. The Fed is trying to drive down consumer costs over time. In the short term, that means the price of a motorcycle loan is going up.

With inflation, the cost of motorcycles could increase too. If you plan to purchase a bike this year, consider buying something used or starting with a lower-end model. As inflation levels off, prices should stabilize, and interest rates will come down again. That’s the time to buy the new bike with all the bells and whistles.

APR and Interest Rates are Not the Same Thing

APR and interest rates are often confused. The difference between APR and interest rate is that APR, which stands for “annual percentage rate,” includes financing charges and fees along with interest rate. Buyers often haggle an APR when it doesn’t match the lender’s advertised interest rate on motorcycle loans. The terms are not interchangeable.

The Federal Reserve Bank determines interest rates, but their rate is not the same as what the buyer will get on a motorcycle purchase. The Fed determines the “Federal Funds Rate,” which is the rate that banks pay when they borrow from other banks. The consumer interest rate on loans and mortgages is always a few percentage points higher.

As the Fed raises interest rates to combat inflation, lenders set their rates to mitigate inflationary risk. Motorcycle loans are typically shorter-term loans, so lenders have less risk. Buyers with good credit today can get an APR as low as 3.99% on a one to three-year loan. The Federal Funds Rate is only 1.75%. The rest is bank mark-ups, finance charges, and fees.

How to Lower Motorcycle Loan Interest Rates

Buyers often feel they have no control over APR and interest rates. Fortunately, that’s not entirely true. You can lower the interest rate on a motorcycle loan by putting up a higher down payment or agreeing to a shorter term. A one-year loan is cheaper than a three or five-year loan. The shorter loan term also lowers the total payout of APR fees.

Another option is to not go through the dealer for financing. Traditional banks and online lenders don’t always have specific loans for motorcycle buyers, but they offer unsecured personal loans to finance your motorcycle purchase. The APR on these loans comes as low as 2.49%, and the buyer can use any excess funds after the purchase to buy accessories.

The Bottom Line

Interest rates are only one variable in determining the price a buyer pays for a motorcycle. Finance charges and fees also influence the annual percentage rate (APR). Dealers charge additional fees on top of that for the “convenience” of dealer financing. Higher down payments can bring that cost down, but so can taking out a personal loan to buy the motorcycle. Consider all of your options carefully before making a purchase decision.

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