Is A Credit Card Motorcycle Loan Right for You?

Have you heard of a Private Label Credit Card motorcycle loan? It sounds mysterious, like a secret society that you have to join to get special advantages. However, it is actually quite a common option for financing a motorcycle, ATV or UTV.  Because these cards can be tricky, it’s important that you understand how private label credit cards work before using one to finance a powersports vehicle.

The goal of this article is to equip you with the latest information and help you prevent from being misled by private label credit card financing.

What Manufacturers Offer Private Label Credit Financing

Private label credit cards are an agreement between a bank and a motorcycle manufacturer to extend credit to customers only for a purchase from authorized motorcycle dealers. The manufacturer normally does not manage the card, and it is maintained by a third party bank that issues the card and collects the payment.

In the powersports industry, Capital One bank is the major issuer of private label credit cards for financing motorcycle, ATV and UTV purchases.

Three major brands offer private label financing. They are:

• Yamaha – The Yamaha Card provides flexible terms based on credit approval.  Yamaha frequently runs low interest rate variable and life of loan promotions on the Yamaha Card.
• Polaris – The Polaris Star Card allows you to finance with no money down and flexible payment options, and many different low interest rate finance promotions.
• Kawasaki – The Kawasaki Good Times Credit Card offers promotional financing and a fast approval process though authorized Kawasaki Dealers.

Capital One is the bank behind the financing for these cards and the financier that you will be dealing with for repayment.

Promotion Rate vs. Standard Rate vs. Default Rate

The rate you pay on these private label credit cards can be tricky and impact the cost of your loan. There are three types of rates that may be quoted to you and you need to know what each one is and how they affect you.

A promotional rate is a special rate that a manufacturer is offering for a limited time. It is comparable to an introductory rate on traditional credit cards and can be as low as 0%. The rate may last through the entirety of the loan or it may be limited to a certain number of months.   You need to be well aware of the promotion details and exactly how long the promotion lasts.

Normally after your promotion rate expires, your remaining balance will be accessed interest at the standard rate. The standard rate is what is considered the normal rate on the credit card. However, it may vary for different people based each person’s credit rating. The standard rate is normally between 12.95% and 21.95%.

If you happen to default on your payments for the credit card, the interest rate can be changed to the default rate. This rate is what is applied to your account and it is much higher than the standard rate. It can go up to 28.99% and may be what you have to pay for the rest of the loan term.  This can be disastrous for most people since the average loan amount for a typical motorcycle is $8,000.

Types of Credit Card Promotions

Most manufacturers offer two types of promotion options for private label credit card financing

• Life of Loan Promotion
• Intro Promotions  (also known as variable rate promotions)

Be aware the amount you pay is drastically different based on the type of promotion you get.

Life of loan promotions have a single fixed interest rate through the life of the loan. This type of loan is a credit card, but it works more like an installment loan.  With a life of loan promotion, if you make all your payments on time, your low promotion rate (such as 3.9% for 60 months) will stay the same until your motorcycle, ATV or UTV is paid in full.

An intro promotion, has a low introductory promotion interest rate but that rate increases at some point of the loan.  The rate will normally increase to the higher standard rate after about 6 to 24 months. With a life of loan promotion you know how much you will be paying each month, whereas your payment on an intro promotion can significantly change when the interest rate increases.

Please note, on both life of loan and intro promotions the bank can increase the rate if you are late on your payment.   So it is important to keep your account in good standing to prevent a skyrocketing interest rate and payment.

With private label credit card financing you should be aware that the promotional rate may have exclusions. This means that while the purchase of the motorcycle, ATV or UTV will be financed at that low rate, any accessories may be charged at the higher standard rate. Add-ons to the vehicle itself are usually included in the promotional rate, but other items such as helmets may be charged separately.  It’s best to check all the details before signing the final documents.

How Your Annual Percentage Rate is Determined

The annual percentage rate (APR) is the most common way to compare the cost of loan offers in terms of a percentage. While it is not perfect, it provides you a nice standard for comparing loan options. The APR can differ from lender to lender.  It can also vary from person to person since it is usually tied to a person’s credit rating. The better credit history you have, the lower your APR may be. It may be based on the payment history, employment history, debt to income ratio, payment to income ratio and other factors.

Double Billing vs. Single Billing Cycle

Private label credit cards not only have options on the interest rate charged to customers, these cards also have options on how interest is calculated for the billing cycle. The bank can use either a double billing cycle or single billing cycle to figure the finance charge for that month’s payment, which does impact how much interest you pay.

Double billing

When a double billing cycle is used, it means that the bank calculates the finance charge based on your average daily balance over two cycles, the current one and previous one. This makes the finance charge higher for you because it includes the principal of the loan that was reduced with the last month’s payment instead of just the amount owed for the current month.

Single billing

With a single billing cycle, only the current month’s average daily balance is used. This is the preferred method to finance a motorcycle because the finance charge is lower since the principal is reduced each month.  When comparing credit card motorcycle loans, it’s always best to ask if the card has a double billing or single billing cycle.  This can make a big difference on a $7,000 to $15,000 motorcycle, ATV or UTV.

Benefits of Credit Card Financing

While intro promotions and billing cycles are tricky aspects of credit card loans, there are a few benefits. Here is a look at them.

• Manufacturer promotions allow you to buy a motorcycle, ATV or UTV and take advantage of low promotion interest rates.
• Repeat purchases can be added to the card without having to apply for new financing again.  However, be aware repeat purchases are normally at the standard rate unless the manufacturer is running a promotion.
• Private Label Credit Cards are a great way to build your credit.
• Some dealer will allow these cards to be used for maintenance work.

Facts You Need to Know Before Financing a Motorcycle With A Private Label Credit Card

• The term revolving loan is the same thing as a private label credit card loan. The two terms are frequently used interchangeably.
• A private label credit card intro promotion (variable loan promotion) is one that has a low rate and payment for a limited time. For example, 3.99% for 24 months. After the promotional period ends, the rate can increase up to 21.99% and increase your monthly payment. These special promotions are best used for someone who plans to pay off their loan before the end of the promotion period.  It’s possible you could refinance at the end of the promotion period, but that can be risky since not many banks offer used motorcycle financing.
• For buyers who plan to finance a motorcycle through the entire loan term, an installment loan or a life of loan credit card promotion is normally the best options.  Again watch out for intro promotion (variable loans) on private label credit cards.
• Unlike a traditional loan, a private label credit card loan allows you to have an available balance as you pay off the principal. This balance can be used for new or add-on purchases though authorized motorcycle dealers.
• Private label credit cards are secured, which means the lender has a lien on the title to your motorcycle until it is paid off.
• With some private label credit cards, missing a payment can cause you to lose your promotional interest rate and start paying your balance at the much higher standard interest rate.  Make sure you understand these terms before signing.
• The default rate is higher than the standard rate and is triggered if you are 60 to 90 days late on your payment. The default rate can be as high as 28.99%.  Again not paying your bill can cause the default rate to initiate.