Paying off a motorbike loan early is finalising a loan prior to the scheduled fixed term date, which may be done with extra payments, lump sum, or refinance. There are numerous reasons why riders may choose to pay out their loan before the conclusion of the term – both financial and personal. The action may deliver advantages depending on how the process is carried out. But there can also be costs involved.
Secured Motorcycle Loans, which are the most popular credit option for financing new and most second-hand bikes, typically have a fixed loan term. Repayments are scheduled monthly over that term. To pay out the loan early, the borrower finalises all the repayments ahead of the end of that fixed term. The final payout would include any monthly payments left, the interest that would apply, and the break fees charged by the lender.
"Why riders would consider paying off a motorbike loan early"
If loan payments have been established to suit the borrower, why would they want to finalise a loan before they have to? There can be personal and financial reasons.
The borrower may have accrued the available funds to finalise the loan and has a preference to own their machine outright as soon as possible. Possibly they didn’t have those funds to make a deposit when purchasing the machine and taking on the finance. But now the funds are available, and the opportunity presents to wholly own their prized ride. An objective which may be a personal preference or a key life objective.
When lenders accept a machine as collateral for a loan, they register their interest in the goods with the Personal Property Securities Register, PPSR. When the borrower finalises all monies owed on the loan, the lender releases their security hold on the goods, and the borrower has complete unencumbered ownership of the goods.
Extra funds may have become available to the borrower through an inheritance, gift or windfall. The borrower may choose to utilise the funds to pay down their debts – in particular their motorbike loan. Reducing debt and/or being debt-free, can improve the individual’s personal balance sheet. Placing them in a better position when planning to apply for finance for other purposes. Less debt can also improve an individual’s credit score.
A wage increase may result in having extra in the budget each month. The borrower may decide a sensible way to utilise that extra is to put more towards their motorcycle loan. Secured loans do allow for extra payments to be made. The borrower can choose to so as an option.
The rider may be upgrading to a new model and prefers to finalise the existing loan to be ready to sell or trade the existing machine with the new purchase.
Where financial circumstances change, individuals may need to review their current loan obligations and consider their options to improve their situation. Where motorcycle finance payments have become onerous with a changed financial position, the rider may look to refinance the loan to seek a better rate or more workable payments. This would entail finalising the existing loan.
Costs and advantages of early loan payout
Depending on individual loans and the timing of the payout, borrowers may realise several benefits from finalising finance prior to the end of a fixed term. Financially, there can be a savings of interest accrued on the loan.
Interest is charged at a fixed percentage over the repayment time of the loan. By repaying the full amount before the end of the term, less interest may be accrued. With less total interest accrued, the finance effectively is cheaper and so is the cost of buying that motorcycle.
For many riders, a key advantage of repaying finance ahead of time is owning their machine outright much sooner. This may be a personal goal, or it may strategic. Borrowers looking to apply for other loans may benefit by having what is known as a better personal balance sheet – more assets, less liabilities. Lenders review assets and liabilities when assessing new finance applications. Having less debts and more assets may contribute to a better offer on new loans.
Where the finance is finalised outright rather than through refinance, the process may ease budget pressure. Allowing more income for other purchases and purposes.
In addition to interest saved, there may be a saving on insurance premiums. When a motorcycle is financed with secured credit, lenders insist the machine be fully insured over the finance term. When the finance is finalised, the security hold is lifted. Insurance is not essential. While many riders will opt to insure their machine, it does become a choice when the machine is no longer under finance.
While there can be advantages there are also the costs of finalising finance ahead of time to consider. Lenders charge break fees when loans are settled before the scheduled end of a fixed term. For consumers, these fees may be minimal but may vary with lenders. The fees may be a combination of a flat charge plus a percentage of the finance outstanding.
Loans may be finalised at any time during the term. The timing, eg months or years early, may determine the amount of interest saved and the costs incurred.
Ways to pay off motorbike finance early
Loans can be finalised in several ways – making regular extra payments over the time, paying the outstanding debt from cash funds, or refinancing the balance owed with a new loan. When finalising with cash or refinance, the lender should be contacted to obtain what is known as the payout figure. This will be the total that needs to be paid to finalise the loan at that time. The lender will provide a timeframe for how long that figure is valid. If not finalised within that timeframe, the payout figure can change when another repayment is made, or interest accrues.
To finalise with cash funds, borrowers simply make the required payout figure payment to the lender. If extra payments are made at various times during the term – an option with secured finance, the full amount due will be reduced and the loan will be finalised prior to the end of term. If you have made extra payments over the term, contact the lender to find out how much is still owing.
Refinance is another option for finalising loans ahead of time, but this does involve taking on a new loan. The new loan encompasses all outstanding amounts with a new finance arrangement. When refinancing, the bike is assessed as used, used goods rates apply at the current rates.
For quotes on refinance options when paying off a motorbike loan, contact Jade Bike Loans on 1300 000 003.
DISCLAIMER: IN REGARD TO ANY ERRORS OR MISREPRESENTATIONS IN THIS MATERIAL, NO LIABILITY IS ACCEPTED. THE DETAILS, CONTENT AND DATA IS PRESENTED PURELY FOR GENERAL INFORMATIONAL PURPOSES FOR MOTORBIKE BUYERS AND THOSE SEEKING MOTORCYCLE LOANS. THIS IS NOT INTENDED AS THE SOLE SOURCE OF INFORMATION FOR FINANCIAL DECISIONS. IF SPECIFIC ADVICE IS REQUIRED AROUND FINANCIAL DECISIONS, READERS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
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