Trading In Your Motorcycle With Money Still Owed: Everything You Need to Know

Are you ready for a new motorcycle, or at least a new-to-you bike? Maybe you have a starter model, and you’d like something bigger and more powerful. It could be that you’re looking to switch from a cruiser to a touring bike. Perhaps you want to branch out from the norm and get an adventure bike. No matter what your reasons may be, you’re probably hoping to trade in the motorcycle you have to get your upgrade.

 

Usually, trading in a motorcycle is a pretty straightforward process. You take the bike to a dealership and find out how much they’ll give you for it. If you accept their offer, you’ll have a nice down payment for another bike that you get to ride away on.

 

What happens if you still owe money on the motorcycle you want to trade in, though? That makes things a bit more complicated, doesn’t it? You can still trade a motorcycle if you have an outstanding loan on it, but you need to understand how that changes the process and how it could affect you moving forward.

Trading In a Bike With Positive Equity

First, let’s talk about trading in a motorcycle with positive equity. Positive equity means the bike’s value is higher than the amount you owe on it. That would be the ideal situation if you’re thinking of trading it in.

 

With positive equity, the trade-in process works much like it would if you’d already paid off the bike. The exception here is that the dealership would use at least a portion of the bike’s trade-in value to pay off your existing loan. If there’s any money left after the payoff, you could put it toward the down payment on your new motorcycle.

 

The worst-case scenario here would be breaking even. That would mean you’d have to choose between coming up with a down payment for your new bike out of pocket or having higher monthly payments on it. Neither is a bad choice; you’d just need to decide which one would work best for you both now and over the long term.

Taking a Closer Look at Negative Equity

Now, let’s take a closer look at trading in a motorcycle with negative equity, also known as being upside-down on your loan. That means you owe more on the bike than it’s currently worth. Several scenarios could leave you underwater on a motorcycle loan.

 

● Faster depreciation than expected

● Making modifications that detracted from the bike’s value rather than increasing it

● Being in an accident and having the bike repaired

● Having a higher-than-average interest rate on your motorcycle loan

● Making little or no down payment on the bike

● Refinancing the motorcycle at some point

● Paying too much for the bike to begin with

 

Those are some of the most common scenarios that could leave a person with negative equity in a motorcycle. As mentioned earlier, being upside-down on a motorcycle loan doesn’t necessarily mean you can’t trade it in. It simply adds a few extra steps to the process and means you need to weigh your options more carefully.

Calculating Your Motorcycle’s Equity

Having said all that, you may be wondering how to find out if you have positive or negative equity in your motorcycle. To do that, you need to know the value of your bike and exactly how much money you still owe on it. Start by looking at your current loan balance on your statement or via your online portal if you can. Otherwise, you can contact your loan provider to find out how much you owe.

 

From there, you’ll need to find out your bike’s value. You can use valuation tools like Kelley Blue Book or NADA Guides, but keep in mind that those only give you rough estimates. Dealerships may offer you more or less depending on the bike’s model, condition, mileage, demand, and even where you live. With that being the case, you may want to visit a dealership to get a more exact figure.

 

Once you have both numbers, subtract the loan balance from your trade-in offer. If the difference is positive, your bike is worth more than you owe. If it’s negative, you’re upside-down. For example, say you owe $5,000, and your bike’s trade-in value is $10,000. That would leave you with $5,000 in positive equity. On the other hand, if the bike is only worth $5,000, and your loan balance is $10,000, you’d be upside-down by $5,000.

 

Of course, there are a couple of additional factors to consider when you’re making those calculations. On one hand, if you trade in the bike while you still owe on it, you could actually save quite a bit of money in interest. As such, the payoff amount may be less than it appears on paper.

 

On the other hand, some lenders impose penalties for paying off loans early to help offset the amount they’ll ultimately lose in interest over time. If that’s the case for you, having a dealership pay off your bike could cost you more than you think. Be sure you read the fine print to fully understand which way the tables will turn.

How the Trade-In Process Works If You Still Owe Money On Your Bike

Now, let’s discuss the process works when you still owe money on the motorcycle you’re trading in. It’s important to know that the dealership will most likely handle the payoff for you. Below are the steps you’ll go through.

 

● Appraisal - First, the dealership will appraise your bike and make an offer on it.

● Loan Verification - If you accept the dealership’s offer, you’ll give them the name of your lender, your account number, and the payoff amount.

● Payoff - Then, the dealership will contact your lender, confirm the details of your loan, and send the lender the necessary amount to pay it off.

● Title Transfer - After the payoff is finalized, your lender will release the bike’s title to the dealership.

 

If your motorcycle’s trade-in value covers the entire remaining balance of the loan, you get to start with a clean slate. You can use the money that’s left for at least a partial down payment on a new bike. If your old bike’s value is less than the payoff amount, though, that’s where problems could come into play.

Dealing With Negative Equity

In the event you owe more on your motorcycle than it’s worth, there will be a gap between the remaining balance on your loan and the money you get for your bike. You’ll have to decide how to deal with it. You have a few options here.

Paying the Difference

One option is to pay the difference out of pocket. If you choose this route, you’ll pay the lender the remainder of the loan balance after the dealership pays them your bike’s trade-in value. Say the dealership offers you $6,000 for your bike, and your loan balance is $7,500.

 

In that case, you’d pay the lender the remaining $1,500 to clear the title. Then, you’d have to choose between coming up with a down payment on your new motorcycle or financing its entire price. In the case of the latter, you’d have higher monthly payments.

Rolling Over the Negative Equity

Another option is to roll over the negative equity into the loan for your new bike. The dealership would pay the difference to your lender, and you’d eventually pay them back as part of your new loan. Keeping with the same example mentioned above, you’d simply add the remaining $1,500 to the cost of the new motorcycle.

 

This solution allows you to avoid paying extra money upfront to pay off your old bike. That can be a good thing, but it also comes with a drawback. Since you’re adding money to the cost of the new bike before you even ride it off of the lot, you’ll be upside-down on the new loan right from the start.

Credit Implications to Consider When Trading In a Bike You Owe Money On

Keep in mind that trading in a motorcycle while you’re still paying it off can affect your credit score for better or worse. If your loan is paid off early, even if it’s by a dealership, that could actually improve your credit score. That’s particularly true if you made all your previous payments on time.

 

Conversely, applying for a new motorcycle loan may lower your credit score by a few points, at least temporarily, because of the hard credit inquiry. On top of that, rolling negative equity into a new loan may increase your debt-to-income ratio. That could reduce your borrowing power until you pay off the new loan.

Alternatives to Trading In Your Bike While You Still Owe Money On It

Trading in your motorcycle while you still owe money on it isn’t your only choice. Certain other options could be more affordable and less risky. That depends on several factors, though.

Selling Your Bike to a Private Buyer

You could sell your bike to a private buyer rather than trading it in. Sometimes, private sales bring more than trade-ins, so you may be able to get enough money out of the deal to pay off your existing motorcycle loan. At this point, you may be wondering, how do I sell my motorcycle if I still owe money on it? Is that even legal?

 

In short, it’s legal if you go about it the right way. First off, the amount you still owe on the motorcycle needs to be paid. Otherwise, you won’t be able to get a clear title to give to the new owner. You can either pay off the remaining balance yourself or have the buyer pay the lender. Many potential buyers aren’t willing to take the latter route, and if you pay off the loan yourself, that’s basically defeating the whole purpose, isn’t it? Still, a private sale is an option.

Refinancing

Refinancing your current motorcycle loan may be a possibility as well. That could get you lower interest rates, lower monthly payments, or both. Before refinancing, though, be sure the new interest rates and loan terms you’re getting are actually better than the ones you already have.

Holding Onto Your Bike Until It’s Paid Off

Alternatively, you could wait until you pay off the existing loan to trade in your motorcycle. That may not feel like the best move, especially if you’re not really happy with the bike or you’re paying more than it’s worth. It could be a better option from a financial perspective, though. It’ll keep you from having to pay any money upfront or risk starting off your new bike loan on a sour note.

Getting a New Bike Despite Still Owing Money On Your Old One

Whether your motorcycle isn’t a good fit or you’re just ready for an upgrade, trading it in for a new model could be the answer you’re looking for. It’s possible to trade in a motorcycle even if you still owe money on it and you’re underwater on your current loan. Just be sure to consider your options carefully to avoid causing yourself undue expenses and hardships.