If you are like most beginner riders, purchasing a beginner motorcycle is going to significantly impact your finances.
BestMotorcycleForBeginners.com guides riders to choosing a wise first beginner motorcycle based on a variety of physical (beginner rider’s physical attributes) as well as the rider’s mental factors (readiness for riding). In this article, we focus on an entirely different aspect about the beginner rider and that is his/her financial situation.
Everyone’s financial situation is different but chances are if you are reading this article, purchasing a beginner motorcycle is going to be a big and consequential financial decision for you. Motorcycles are typically going to cost thousands of dollars and so it probably took you a while to save that money or it will take you a while to pay back that loan, so the financial aspects of choosing a beginner motorcycle are not one you want to take lightly.
First, if there is anyone out there who is thinking of purchasing a brand-new motorcycle for your beginner motorcycle, we want to flat out state this is almost inevitably going to be a big mistake for a variety of reasons. For one, the chances of you purchasing a motorcycle that you will be happy with as a new/beginner motorcycle rider and one that you will be happy with say a year or two later when you’re more experienced and have a better firsthand understanding of what type of riding you like and what features of a motorcycle agree with you and disagree with you is highly unlikely. So, chances are you’ll want to sell that motorcycle and switch to a different size, style, brand, whatever and when you go to sell that motorcycle,you’ll get a firsthand lesson in the unforgiving experience of rapid depreciation of motorcycles from the moment they roll out of the showroom and under their first owner. The fall in the value of that motorcycle is the steepest in the first few years of the bike’s life and that means you’re probably going to take a loss … potentially a big one (and this is true ofautomobiles and many, many, other large ticket items and is generally known as the depreciation curve).
Aside from simply looking at the depreciation curve infographic above, to learn more about how much the depreciation curve can waste your money, we’ve created a rough hypothetical situation for you to follow along with and see how the depreciation curve will come into play.
Let’s say you go to your local dealership and fall in love with that first motorcycle and just have to have it. Let’s say you go through the joys of haggling with a salesperson, and negotiate a price of $6500, throw in taxes and fees at another (nice round) $500 so the total cost is $7,000. Now let’s say you had saved $2,000 and put that down on the motorcycle and therefore the balance is $5,000 which you cover by securing a loan from a local bank and you drive that shiny little toy out of the showroom and into the open road you’ve been dreaming about ever since you went to the showroom and fell in love with that new motorcycle.
Now after say 2-years in which you really enjoyed the beginner motorcycle you bought but knew going into it that you were buying something on the safer end of the motor size and moderate style but now that you’ve had some years of riding experience and knowledge have the skills, experience, and confidence and to handle something bigger and better so you find that better second bike. Let’s say the second bike is new again and it sells for say $15,000 … bigger, better, newer means more money! And, now you need to either trade in your 2-year old bike or sell it yourself out right on the open market (this is the more painful option but you will most likely get more for your used motorcycle than if you trade it in).
Since you still owe an amount on the loan, you’ll have to pay that off before you can get another loan for that next bigger better newer motorcycle. And, you need to understand that most lending source (e.g., banks) vehicle loans front-load their interest so even though you were paying (running with this hypothetical example still) say $200 a month for 2-years and so you forked out $2,400 in total for all those monthly loan payments. And, because of the front-loading of interest, most of that to those payments went to pay off the interest on the loan and NOT THE PRINCIPLE even though you sent $2,400 in monthly loan payments to the bank, only say half ($1,200) of that actually went to paying down the principal amount (the original $5,000 loaned to you) so you actually still owe $3,800 dollars on that loan and have to give the bank that amount of money in order to close out that loan and be ready to take out another loan for the second motorcycle.
Where are you going to get $3,800 at this point? Well, when you sell this first motorcycle of course. And, since it was worth $7,000 just a few years ago, you should be able to sell it for just a bit less as it’s still only a 2-year old motorcycle. Here’s where you will learn the cold hard facts about the depreciation of new vehicles (autos, motorcycles, and almost all “new stuff”). That bike you bought for $7,000 brand new has significantly dropped in value in those 2 short years and probably is on average going for about say $4,000 used. And so, if you sell it, yes, you can use that cash to pay off the $3,800 you owe on the loan, but after that, you’ll only walk away with about $200. And now you are going to want to buy that bigger better new motorcycle with the $15,000 price tag and only have $200 to work with at this point. To add insult to injury, you need to consider how much you spent to own that first bike for 2 years.
1st, you spent $2,000 when you used your cash as a down payment, secondly you spent another $2,400 in monthly loan payments. So in total, you laid out about $4,400 to have that bike for 2 years and in the end, you walked away with $200 after you sold it. So, where are you going to get the money for the down payment on your second bigger better new motorcycle when you just got done shovelling $4,400 of your income into that first bike?? Our recommendation, for your first motorcycle, compromise a bit, do not buy a new motorcycle that is going to plummet in value in the first couple of years. Instead, look for something older, that is at a more palatable price point. So something like this: you find a decent modest used motorcycle for says $3,000 after adding sales tax you are looking at $3,200.
Now that $2,000 you had sitting around and used for the down payment in the first scenario nearly pays this used motorcycle off and you only have to finance say $1,200 which at that same $200 a month loan payment rate we used in the first example would result in paying off that loan completely in just about 7 months of your beginner motorcycle experience. And, so if/when you decide you want to move up to a bigger better newer motorcycle, in this second scenario you own the motorcycle so whatever you sell your motorcycle for, will be yours to keep and apply to that second, bigger better newer motorcycle. So let’s say you sell that used bike for $2,000 (very possible as the depreciation curve has begun to flatten out and so the motorcycle really hasn’t lost much value (that is in comparison to the new motorcycle you bought in scenario #1).
So, in the first scenario, you laid out $4,400 and in the end have $200 to work with as a down payment for your second motorcycle. Yet, in this second scenario, you still laid out $4,400 in total (but only had loan payments for 7 months vs 24) but now have you have $2,000 to work with as a down payment for this second motorcycle. A much, much, better position to be in all because you made the smart, mature, level headed decision to be reasonable and not go with a new motorcycle for your first beginner motorcycle purchase!
So going with a used beginner motorcycle is most likely the smart choice!
So to avoid all the financial and emotional pain of suffering the effects of the depreciation curve, we highly suggest choosing a used motorcycle for your starter/ beginner bike. To give you some specific advice on how to do this, we’ve created a guide to finding good used beginner motorcycles. Visit that guide by clicking on the image below.
This article was designed to focus on one particular factor involved in choosing the best beginner motorcycle. For a complete guide covering all the decision points in finding a great beginner motorcycle, visit our Ultimate Guide to the Best Motorcycle for Beginners click on the image below.