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Why are motorcycle loan rates so high?

Perception is not reality. Coming out of a multi-year period where interest rates were near zero for personal loans and mortgages, it’s easy to claim that motorcycle loan rates are “high.” Historically, they’re not. They’re certainly rising, but they’re still nowhere near what we’ve seen in the past. In 1981, the average US interest rate on loans was 16.63%.

We’re not experiencing an OPEC oil embargo, so rates aren’t likely to hit that historic level from the ’80s this year. Unfortunately, economic conditions are challenging, so rates are going up and will continue to rise through 2022. There are several reasons for this, most of which are connected to the economic recovery from the Covid-19 pandemic.

Why the Federal Reserve is raising interest rates?

When the world shut down to deal with the pandemic, the Federal Reserve Bank cut interest rates to zero. That was on March 15th, 2020. Two years later, at a meeting of a Fed Board of Governors, they voted to start gradually raising them again. The first-rate hike was just a quarter of a percentage, but several more hikes are planned for this year and next.

To clarify, the rate set by the Federal Reserve is not the rate that consumers get from their lenders. It’s the “federal funds rate” (FFR), which is the interest charged to banks when they borrow from other banks. That’s why we didn’t get 0% on loans and mortgages in the past two years. The FFR is still lower than 1%. Consumers are lucky to get 5% on a loan contract.

The reason that the Fed is raising rates now is to halt or at least slow inflation. Federal policymakers believe that making it more expensive to borrow money will slow economic growth and consumer spending. In theory, that should drive prices down. Anyone who’s been to the gas pump or supermarket recently can relate to that.

The trickle-down effect for motorcycle buyers

The Fed rate hikes mean higher motorcycle loan rates for consumers. Lower sticker prices could balance that out as the new policy takes hold. It won’t happen overnight, but the average price for a new motorcycle should come down at some point. That new Harley that’s priced over $30,000 right now might be more affordable in 2023.

Meanwhile, supply chain issues are still plaguing manufacturers and distributors. Electronic components are on backorder. Fuel prices for long-haul trucking companies are causing them to limit their routes. Shipping containers are sitting outside major ports, waiting to get unloaded when the logjam clears. It will take some time for these issues to be resolved.

The Bottom Line

Now might be the time to buy a used motorcycle. Consumers with decent credit scores can still get a motorcycle loan for 3.5% to 4.5%. That’s not bad, but sticker prices are still high due to inflation. The Fed rate hikes will make that loan more expensive. They will also lower the sticker price of the motorcycle. It might be a good idea to buy something used right now and come back for the new Harley in 2023.

One way to do this is to find a used motorcycle on sale for under $10,000 and take out a personal loan to pay for it. Do it right, and there will be enough left over for a helmet and cool leather jacket. Online lenders are offering competitive rates and will work with consumers who have less than perfect credit.

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