A two-wheeler loan is a great way to get your dream bike without any compromises. The quick and easy application process makes it a smart choice, as opposed to dipping into your savings. However, while the process is quick and hassle free, there are some crucial loan factors you need to be aware of that can help you make an informed decision.
The process of availing a loan may be daunting and, in some cases, expensive. Hence, understanding these critical loan factors helps you better prepare and plan for your borrowing. Since a two-wheeler loan is a secured loan with your bike being the collateral, being prepared well in advance helps.
It ensures timely repayments, eliminates the risk of losing your bike, and keeps your creditworthiness intact for future borrowings. Read on to know the crucial terms of a two-wheeler loan to borrow smartly and affordably.
Crucial Points to Consider When Opting for a Two-wheeler Loan
Evaluate the Loan Amount
Before you apply for a two wheeler loan, assess your requirements to determine the loan amount needed. Research the market price of your preferred bike and compare it with other two-wheeler options.
Many lenders offer up to 90% of the value of a bike loan, but with a better credit history, you can also get 100% value. Considering this as a starting point, you can calculate the out-of-pocket costs and the required loan amount you need to borrow.
The amount you pay upfront to book your bike is known as the down payment. By making a higher down payment, you need to borrow a lesser amount, which decreases your interest rates and EMIs subsequently.
Understand Different Repayment Options
A two-wheeler loan has a very flexible repayment structure. So, you can choose from multiple options to ensure a timely repayment. Using a bike loan EMI calculator can help you achieve this instantly and reduces the time spent manually on calculating various options.
With an online EMI calculator, you can compare interest rates and loan amounts offered by different lenders to evaluate a suitable option. You can find this digital tool on most lenders’ websites, and you can access it before proceeding with your application.
.Assess Interest Rates and Tenure
The interest rate of a loan is the most crucial factor to consider when planning a two-wheeler loan, as it decides your monthly repayment amount. Checking out various options from multiple lenders allows you to compare different interest rates.
Interest rates for bike loans range approximately between 9% -17%, and you can get a lower interest rate depending on your eligibility and income. If you get a higher interest rate due to a lower credit score or other factors, you can balance it by opting for a lower tenure.
You can take a minimum of 12 months of tenure and a maximum of up to 5 years, depending on the lender's policy. By opting for a lower timeline, you can clear your outstanding debts quickly.
Account for Additional Changes
In addition to the interest rate, other loan-related charges can also increase your repayment amount. These involve processing charges, documentation charges, late payment charges, and other fees. Considering these additional charges before selecting a lender will give you an approximate repayment amount and EMI cost.
Look for Seasonal Offers
Lenders offer competitive offers on two-wheeler loans during festive seasons. Be it Diwali or Dussehra, you can scout for such interesting offers on loan terms and conditions. Leverage these offers to get easy credit for your bike, scooter or other two-wheelers at exciting rates and easy approval.
Consider Processing Time
Whether it is a two-wheeler loan or any other credit, financial institutions may take time to evaluate loan terms before offering an affordable offer. Thus, there may be some delay between the loan application and the disbursement process.
However, you can save time on your loan application by keeping the required documents handy and checking if you meet the set eligibility criteria before applying.
Read the Fine Prints
It is most important to read the terms and conditions mentioned in the loan documents. Make sure to check for any additional charges and fees to avoid any addition to the repayment cost. Missing to read any fine print may cost you more on your two-wheeler loan in the long run.
Factors Affecting Your Loan Application
CIBIL score: A higher credit score, preferably 750 or above, will increase your eligibility for a better loan offer. This is because a good credit score assures the lender of your creditworthiness, and you can leverage this benefit for affordable loan terms.
Age: For a bike loan, age is an important factor to consider, as taking a loan early gives you a more flexible repayment tenure. For borrowers between 18 and 21 years, you can apply with a co-applicant to get a better two-wheeler loan offer.
Debt-to-Income Ratio: Banks and NBFCs will only give you credit for a specific ratio of your monthly income to your existing debts. Hence, a higher income will get you more credit and a nominal interest rate.
Existing Loan: Having multiple credits can impact your credit score, as the lender may see you as a risky borrower. So, clear your existing debts before applying for a new loan to enjoy favourable loan terms.
Status of Employment: Salaried or self-employed individuals have different eligibility criteria. Nevertheless, you must have a minimum of 6 months of steady employment as a salaried professional or a business vintage of at least 2 years if self-employed.
City of Residence: Top-tier or metro cities have a different standard of living than tier-two cities. Hence, lenders fix different loan terms based on the city you reside.
Considering these terms for your bike loan can help you devise a better plan to finance your two-wheeler loan. Remember, you can optimise your two-wheeler loan by taking a longer tenure or opting for a loan with lower interest rates. Further, availing a loan from a known lender will be a better option when taking credit as you can negotiate your loan terms better.
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