Motorcycle loans are considered unsecured - question

[Quigs]

Just an idle question here, if any of you finance-types can clarify something for me.

I was under the (wrong) impression that a motorcycle loan from Yamaha (etc) was considered a secured loan, since the bank still held the title. However, when you finance a bike, you basically get a credit card from that manufacturer. As I was going through the whole mortgage process, I was surprised to find out that the bank considers a note on a bike to be unsecured debt.

My question, then, is if it's just a credit card, and is unsecured, why does the bank hold the title? It just strikes me as a bit odd.

Probably a simple explanation, but I've been googling around and it's hard to determine anything, because all of the search results return shit like "DO YOU HAVE SUCK CREDIT? WE LOAN U SHIT ANYWAYS! 39.99%!".

[Ray-Ray]

Ive wondered the same thing. I know that when you finance a motorcycle through the dealership and use the major companies like yamaha, honda ,ducati or suzuki etc... Your actually taking out a "line of credit" which makes it a revolving loan instead of an installment loan. Like most credit cards. Now if you use your own bank source, then you have an installment loan which is secured because they have the title. (Unless it was a personal loan, then you dont have to giev them the title.) But I have asked why companies such as Yamaha keep the title if its a line pf credit. Maybe for more security for them in case you dont pay? I dont know.

[Eric Baker]

When I bought my bike, they got me an actual loan through a bank, Chittenden Bank (VT) actually. So it was a secured loan.

[Quigs]

It's not really a big deal, it just struck me as odd that they'd keep the title as collateral. I'm sure it's in the fine print somewhere, but still surprised me when I was going through the mortgage process that it shows up as an unsecured loan like a credit card.

[dontpanic]

I think the person you spoke to just couldn't think outside the box.

A lending institution that holds the title to your bike has a perfected security interest in the collateral, so the credit facility would be secured. Plain and simple.

The other component of the question is, what kind of credit facility is it? It could be a straight loan, or it might be another type.

When we bought my car through Brenda's credit union, we actually signed a revolving credit agreement rather than a loan promissory note. So, we're equally obligated to repay but from the point of view of getting the words right, we have a revolving loan. (It allows for the following scenario: "Hello, Mr. Lender? Can you advance me another $1,000 on my account? Thanks!")

So, I think that the person you spoke to just didn't understand the concept that a secured credit facility can be revolving.

[Quigs]

This was Citizens bank's underwriting dept. I have a fuckload of equity in my place, and the short version is that I converted a duplex into condos with my brother, and he wanted to roll his bike loan into his side. (We both have well above 20% equity, so there was plenty of "room").

However, the bank/underwriters came back and said that since it's unsecured, it's considered "lifestyle", and not something that you could pay off with a new mortgage, or a cash-out refi. It's a Yamaha credit line, fwiw. It didn't stop the loan or anything, but it just struck me as odd.

[jwm2k3]

In the past there were sometimes 2 different type of loans from the manufacturers.

Revolving loan and fixed loan.

The revolving is basically a credit card with the manufacturer.

The fixed loan is like any other bank.

Sometimes people would get approved for the revolving and not the fixed.

Sometimes the super silly low rate was the revolving loan only. (then subject to change after a certain period, like 24 or 36 months later to go up to like 22%)

The revolving loans, like credit cards, are unsecured.

The fixed loand use the motorcycle as security.


Hope this helped a bit.

[Trackday Guru]

As a former lender underwriter I can tell you this much: If you financed through a manufacturer (in your case, Yamaha) they usually don't offer purchase money loans at fixed terms (rate, yield, etc.) as at the point in time when the final approval is given, they basically take a calculated risk, or "gamble", on you. They are gambling on your loan (written at, say, 7.99%) in that should you miss a payment, or be late by a certain length of time, they can (and will) increase your interest rate (to say, 24.99%).
This is much more easily accomplished by underwriting the loan to variable terms, instead of fixed terms, and explains for example, in siimple terms why a credit card is "variable" and your car loan is "fixed".
Your lender (Yamaha) holds title to the bike simply because you have not, if you are still holding a balance on the account, paid off your loan, and therefore do not own the bike outright as the title holder. Yamaha or any other manufacturer surely makes money on the sale of a motorcycle, but that profit is made upon the sale to the dealer - not to the consumer. The dealer makes the profit upon the sale to you. The manufacturer does, however, make a significant amount of money by the financing terms of your purchase - that's why your dealership offers their financing "specials" on behalf of each respective manufacturer. And even explains why your retail price is not the same as "dealer cost".
In short, the answer to your question is yes - and no.
Yes in that as a credit card account, your loan is by nature variable and unsecured, and that's how a lender who is pulling your credit and reviewing your payment history will view that account upon seeing it on your credit report.
...and No in that as the creditor of the account in question, the funds used (and lent by them) to purchase the bike grants the credit what is called a "Purchase Money Security Interest" in your title - and as such, they hold title and remain final owner until such time as the loan is paid in full and they release the title ownership to you.