Many people finding themselves in this situation discover that financial lessons are sometimes the hardest and most expensive to learn. Motorcycle loans of more than 48 months (especially without a down payment) put you in the position of owing more than the value of the bike.

Let’s take a look at this phenomenon.

First, the interest calculation your lender uses can make a big difference in your situation, especially in the first 18 months. There are two primary interest calculations, pre-computed (combined with rule of 78) and simple interest.

Pre-computed interest combined with Rule of 78, is typically the worst situation for a buyer because most of the interest is paid in the first 24 months. Therefore, in the first 24 months little of the monthly payment has gone towards paying down principal. If a buyer wishes to sell or trade in the motorcycle within this timeframe they will likely find themselves owing more than the bike is worth. Statistics show that the average owner trades in every 18-24 months.

Simple interest on the other hand, is much more favorable for buyers since interest accrues on the balance of the loan. However, buyers that extend their loans for greater than 48 months can still find themselves up side down with simple interest. This is especially true if a down payment is not made. The reason this occurs is that the motorcycle depreciates faster than the principal is paid; leaving the balance owed to the lender to be more than the bike can be sold for.

A common view that many people have is that they will just surrender their motorcycle to the lender if they are caught in an “up side down” position. If you are considering this option don’t! Your worries do not just end after your bike is surrendered or repossessed; in fact they are just beginning. The lender will sell your bike at an auction for much less than it is worth. You will still owe the difference between the amount you owed on your loan and the amount the motorcycle sold for at auction. So if you owe $5000 and the bike sells for $1500, you still are responsible for owing the lender $3500. To make it worse lenders may tack on hefty auction fees which you will owe as well. So the net result is that you are now responsible for making monthly payments on a bike you can no longer ride.

So what steps can you take to prevent from being caught “up side down”?

1. Find a lender that uses simple interest. Avoid lenders that use pre-computed / Rule of 78 interest calculations.

2. Always try to put money down on your purchase.

3. Try to avoid motorcycle loans that extend past 36 months.

Jay Fran is a author and publisher for a website that specializes in Motorcycle Loans: High Risk OK. A comprehensive resource on simple interest motorcycle financing, poor credit, new, used and bad credit motorcycle loans.

Well it is simple really talk to a few local service clubs and tell them what you are doing and tell them you wish to give half the money collected to the group and half the money to a charity that you really feel passionate about.

Then present this idea to them at one of their weekly meetings. Then allow the groups to get you some publicity and allow each group member to sell sponsorships for $ .01 to $.10 per mile.

This concept is something I have done in the past a few times and I was recently reminded of this by a gentleman online who is getting pretty heavy into bike racing and triathlons these days. Once we made quite a chunk of change for charity doing this and I can tell you once when I rode from Oregon to Mexico (raising money for Special Olympics and the Kiwanis Club and Optimist Club) on an SR Pro-Touring Bike.

It took many days to complete of course, but it was great to get out there and get it done, knowing that even when we finished we would be half-dead. Because we knew how much money we would raise and for such great causes. Please consider all this in 2006.

Lance Winslow