If a buyer wants to sell or trade in the motorcycle within a bad payment plan they will likely find themselves owing more than the motorcycle is worth.
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.
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.
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 motorcycle 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.
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