When you think about rising transportation costs and the importance of social distance, the first thing that comes to mind as a solution is a two-wheeler. Bikes, mopeds, and scooters not only have lower ownership costs, but they also have lower maintenance costs. If you look into the commuter bike segment, you will find several bikes that are known for their high mileage. These bikes are priced between ₹75,000 and ₹1,00,000 on the market. Here are the key considerations you must make if you intend to finance this bike.
Loan Amount
Never commit to a lender until you have confirmed the maximum loan amount they provide. Most financial institutions will make this loan for up to 95% LTV or ₹1,00,000, whichever is less. However, you should keep in mind that, regardless of what is stated on the website, the final offer is made based on your age, salary, bike make and model, and credit history.
Eligibility criteria
Two-wheelers are a preferred mode of mobility for middle-class people. The lender must not refrain from financing a new bike if your salary or business income is on the lower side. As such, it becomes crucial to go over the minimum qualifying conditions of financial institutions. You should consider applying the bike lender whose criteria suit your profile.
The following are some common two-wheeler loan eligibility criteria for most financial institutions.
- Your age must not be below 18 years.
- You must have one year of work experience, six months of which must be with your current employer.
- You must have proof of employment, income-related documents, and KYC papers.
Interest rate
Check to see what your preferred lender’s 2-wheeler loan interest rate is. Please keep in mind that this loan is not unsecured. The lender hypothecates your bike for the duration of your EMI payments. If you miss several EMIs and are about to default, the lender has the authority to auction off your bike to recover the entire unpaid principal amount as well as the interest rate payment. Given this loan feature, if your lender is still charging exorbitant interest rates, you should never apply with them.
Repayment period
Most lenders provide a two-wheeler loan for up to four years. However, what matters is that you figure out whether this tenure is fixed or if you have the option to choose a shorter tenure based on your affordability.
Keep in mind that your tenure has a direct impact on your pocket. Here is how:
Assume you require a ₹100,000 bike loan. The lender approves financing at a 9% interest rate based on your age, income, and other factors. Let’s look at how different terms affect your budget.
| Particulars | Repayment Period | |||
| One Year | Two Years | Three Years | Four Years | |
| Loan amount | Rs 1,00,000 | Rs 1,00,000 | Rs 1,00,000 | Rs 1,00,000 |
| Interest rate | 9% | 9% | 9% | 9% |
| Monthly obligation | Rs 8,745 | Rs 4,568 | Rs 3,180 | Rs 2,489 |
| Interest payable | Rs 4,942 | Rs 9,643 | Rs 14,479 | Rs 19,448 |
| Total payable | Rs 1,04,942 | Rs 1,09,643 | Rs 1,14,479 | Rs 1,19,448 |
Higher tenure is profitable for lenders but increases the bike financing cost for the borrower. However, it is vital to note that extending the repayment period makes repayment more affordable for your budget. So, use a bike loan EMI calculator to determine what the best EMI is for you. Another important thing to remember is that if you have a lower income, choosing a longer term will allow you to get substantial funding assistance while keeping the rates minimum.
Interest calculation method
There are various ways through which the lender levies the interest rate. Check with the lender’s representative to understand if they charge the reducing or the flat 2-wheeler loan interest rate. In the former, the interest is calculated on your initial borrowing amount. For example, if the loan amount is Rs 1,00,000 and the interest rate is 9%, the total interest payable over the four years is Rs 36,000.
In case the lender employs a reducing method, the interest is calculated after each month’s EMI payment. The lender calculates this rate on the outstanding balance. As a result, you will notice that the interest payable component is higher during the initial loan years but decreases as the loan progresses. Using the preceding example, the interest payable using the reducing method is Rs 19,448.
You can see how much of a difference there is in the interest payable amount. As a result, if the lender you have shortlisted uses a flat rate for interest calculation, you should never proceed with them.
Bike options
Various lenders do not allow you to select from a variety of options. It is critical to determine whether your lender allows you to choose between commuter bikes, off-road two-wheelers, scooters, and electric bikes.
To Conclude
You should always put in special effort to compare two-wheeler loan lenders. The loan amount, eligibility criteria, interest calculation method, and repayment tenure should all be taken into account. Only proceed with the lender if you are satisfied with all parameters.