Steering Clear of Danger: 6 Mistakes Powersports Loan Applicants Make

Purchasing my first ATV was an exhilarating milestone. There's nothing better than getting your new rig out on its first ride to break it in! However, navigating ATV financing can be a tricky process, especially for first-time buyers. Understanding the ins and outs of interest rates, monthly payments, and financing options is crucial to avoid common mistakes that many Canadian powersports financing applicants make. To ensure you secure the best loan terms and keep your financial goals on track, here are the top five pitfalls you should avoid:

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1. Going Solo Instead of Using a Loan Broker

Relying on a single lending source can limit your options. Furthermore, many dealers who offer their own loans or manufacturer financing are often incentivized to steer you towards their approval as the only option. A professional ATV dealer broker with access to multiple lenders can provide a broader perspective and, in many cases, more favorable terms. They have the expertise and resources to shop and compare different options, including financing through a bank or credit union, which can offer better rates and terms. This ensures you find the best loan available in Canada.

Pro Tip: Many dealers offer their finance managers and salespeople kickbacks to sell you at a higher rate.

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2. Over-Purchasing and Over-Borrowing

It’s tempting to choose the top-end ATVs on the market, especially when you’re only considering the payment amount when making the decision. It is important to remember that bigger isn’t always better when it comes to making responsible financing choices. When budgeting for an ATV loan, it is crucial to consider the interest rate and monthly payment to avoid financial strain. Over-purchasing can lead to excessive debt that might be challenging to manage down the line. For most people, an extra hundred dollars spent every two weeks can seem easy to afford but later on lead to unexpected strain on a budget. Consider your needs and budget carefully, and consider any pitfalls that you could run into before settling on your dream ATV.

Pro Tip: Never take on a loan in which the regular payment costs over 20% of your regular paycheque. Aim for 10% or less whenever possible.

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3. Underestimating How Biweekly Payments Work

Many first-time borrowers fail to understand the impact of biweekly payments. Secured loans may offer benefits such as lower rates and longer repayment terms, making them an attractive option for borrowers. With 26 payments a year, it is easy to understand that you’ll wind up with months that you’ll be expected to make an extra payment. While this payment structure can help to pay off a loan more quickly than semi-monthly payments, the extra payment month could lead to unexpected financial strain, especially if it does not align with your employment pay schedule. Understanding how biweekly payments work and planning to have extra capital available on extra payment months is key to managing your off-road financing effectively.

Pro Tip: If your employer pays you biweekly, see if the lenders are able to do an automatic withdrawal that lines up with your paydays. This way you can be sure you’ll have the funds available to make paying back your loan a priority.

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4. Overlooking Prepayment Penalties and Early Buyout Fees

Before signing any ATV financing agreement, check for clauses related to prepayment penalties or early buyout fees. Early payments can have a dramatic impact on saving interest over going full term on your ATV loan and can be a positive when it comes to improving bad credit history. If you plan to pay extra onto your loan or pay off your entire ATV loan ahead of schedule, such charges and penalties can take a major toll on your finances.

Pro Tip: Even the smallest extra payments can save you a boatload when applied toward the principal of your loan. Make a plan to pay extra whenever possible whether it be at tax time, through government rebates or if you receive a bonus.

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5. Forgetting to Set Your First Payment Date

When many people receive their documents, the adrenaline in knowing you’re about to own an awesome new rig takes over. One of the areas that tends to get overlooked is the buyer’s payment schedule. Not setting up your first payment date can lead to an irregular schedule and thus missed payments and harsh penalties. Consider financing options from credit unions, which may offer lower rates and better terms, especially for those with less-than-ideal credit scores. Once your powersports financing is approved, ensure you’ve made it clear on when you want your first payment to be. Double-check that this is also the date set in the documents that you are signing.

Pro Tip: If you’re not picking up your new or used ATV right away, see if they can push back the first payment until closer to the pickup date so that you aren’t paying before a machine that you aren’t using yet.

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6. Not Understanding Your Credit Situation

Before applying for any ATV loan, it is essential to check your credit report and understand your credit score to ensure that you set your expectations accordingly. Additionally, it is crucial to check your credit report for errors and dispute them to improve your credit score. Your credit score alone will not dictate the interest rates that are offered by the finance company. In many cases, poor credit may be indicated about specifics in your history and not the score alone. Previously timely payments along with how much cash you currently have financed can be just as important as your credit score when options are being presented.

Pro Tip: With ATV financing options, any small discrepancy in your payment history will likely lead to an increased rate. Unless you have flawless, excellent credit - you should not expect loan offers with the lowest advertised interest rates.

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7. Not Understanding the Impact of a Down Payment

One common mistake in ATV financing is not understanding the impact of making a substantial down payment. While it might be tempting to finance the entire purchase price, a down payment can significantly reduce your loan amount and monthly payments. Additionally, a larger down payment may even lead to lower interest rates and better loan terms - especially for those with bad credit or who are self-employed, as it demonstrates financial responsibility to lenders and reduces the risk of over-borrowing. By lowering the overall loan amount, you can save money in the long run and make your ATV purchase more affordable.

Pro Tip: Aim to make a down payment of at least 10-20% of the ATV's purchase price. This can help lower your monthly payments and secure better loan terms.

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By avoiding these common mistakes, you can navigate the ATV financing process with ease and confidence. Make your off-road dreams a reality while keeping your finances intact. Remember, knowledge is power when it comes to powersports financing. Use our handy ATV loan calculator to understand interest rates, monthly payments, and financing options. Make informed decisions, secure the best loan terms, and soon, you’ll be exploring off-road trails on your own ATV.


Explore more ATV financing guides by checking out our other articles:

5 Pro Tips for Acquiring the Best ATV Loan Possible in Canada