How to Get a Powersport Loan

Unless you can pay cash, the first step to enjoying a new ATV, personal watercraft, snowmobile or motorcycle is to see if you qualify for a powersport loan. The process is similar to getting an auto loan — your credit score and financial history play a big role in qualifying.

A powersport loan is a recreational loan, not a conventional car loan, so the stakes for qualifying are different. Because powersport vehicles are less of a necessity and more of a luxury item, you’ll want to be sure you can afford it without stretching your budget.

Here are the basic steps you should take to find the best loan option for you.

Check your credit score

Start by checking your credit score. Your bank or credit union may offer free access to your score as part of your account services, but you can also check your score online for free with LendingTree.

FICO credit scores range from 300 to 850. A FICO score of 670 to 739 is considered good, but 740 and above is considered very good. Powersport loans may require higher credit scores than car loans to get the best rate.

Generally, the higher your credit score, the greater your chance of getting approved for a powersport loan with a low annual percentage rate (APR). There are lenders that offer powersport loans for bad credit, but you can expect to pay more in interest charges.

If your credit isn’t as strong as you’d like, you can work to improve your score. Check for errors and dispute any you find. You can demonstrate your creditworthiness by paying bills on time and reducing the amount of credit you use. It can take time to improve your score, but you’ll save money in the long run by qualifying for more favorable loan terms.

Set your budget

Set a budget before you go shopping. It’s easy to fall in love with a UTV for off-road adventures or a personal watercraft to blast through the surf, so knowing what you can afford before shopping may prevent you from overspending.

Use an ATV loan calculator to determine how a powersport loan could fit into your household budget. Don’t forget to account for a down payment, taxes and registration, insurance and other costs that will arise.

Lenders typically review two important factors to decide whether you are able to pay back the powersport loan: your debt-to-income (DTI) ratio and the loan-to-value (LTV) ratio. The lower these are, the better rate you will receive.

Your debt-to-income ratio

Your debt-to-income ratio compares how much money you owe with how much you make. If your costs for housing, auto loans, credit cards, student loans, child support, alimony and other debts are too high compared to your income, lenders will see you as a high-risk borrower.

If your DTI is high, consider paying down other debt first to get a better rate. A DTI of 50% or higher will likely prevent you from getting a loan. Generally, lenders like to see a DTI of 36% or lower, but a ratio up to 45% may be acceptable.

Your loan-to-value ratio

The loan-to-value ratio (LTV) is the loan amount compared to how much the vehicle is worth. Typically, lenders look for an LTV below 100%, which you can achieve by making a down payment. A lower LTV could help you get a better interest rate, and there’s less chance of becoming underwater on your loan.

Traditionally, lenders like to see an LTV of 80%, which means you should make at least a 20% down payment. Some lenders will offer up to 125% LTV financing to allow you to purchase a trailer or other accessories. Check the market value of the powersport vehicle you plan to buy with industry guides like Kelley Blue Book and J.D. Power to help you better understand the LTV ratio.

Shop around

You may have to shop around for a powersport loan. Traditional auto lenders don’t typically offer them. In fact, many borrowers use a personal loan to buy the powersport vehicle of their dreams.

You can prequalify online with the dealer’s financing service, a credit union or personal loan lenders before you go shopping. That way, you’ll have a good understanding of how much you can spend on your new powersport vehicle and the loan terms you qualify for.

It’s a good idea to get preapproved with lenders that aren’t affiliated with the dealer. Sometimes dealers offer financing deals that can help you save money, but generally, dealer financing is the most expensive option. Like all loans, it’s essential to consider the overall cost, including interest and fees, and not just the monthly payment.

Gather your documents

Before applying for a powersport loan, gather the documents and information you’ll need to fill out the loan application:

• Identification: You’ll likely need a driver’s license, Social Security number, or other government-issued form of ID.
• Proof of residence: Your driver’s license should work for this, but you may need a utility bill or bank statement showing your current residence. The lender may ask how long you’ve lived at that address and how much your monthly rent or mortgage payment is.
• Proof of income: The lender will ask for your average monthly income and may ask to see your last two paycheck stubs. You may also be able to use tax returns or bank statements to prove your income.
• Cosigner: If you plan on using a cosigner, they will need to provide the same information to fill out the application.

Apply for a loan

With the necessary documents in hand, it’s time to submit applications to get preapproved. It’s smart to submit multiple applications so you can compare offers and find the best deal. You can even take your preapproved loan offers to the dealer to see if they will match the offer. While you will have to submit to a hard credit inquiry to get preapproved, multiple applications submitted within a 14-day rate shopping period should only impact your credit once.

When comparing loan offers, be sure to consider the total cost of the loan, including interest charges and fees. While a longer loan term will result in a lower monthly payment, keep in mind that you’ll pay more in interest over the life of the loan.