While buying a bike makes a lot of sense in terms of saving money and time, many people need help figuring out how to fund the purchase. People with common wisdom save money for the bike’s price and make a single, one-time payment to make the purchase cost-effective and hassle-free. It saves you from worrying about interest rates, paperwork, etc. However, only some have the money and patience to save money to purchase their dream bike. That is when a Two-wheeler Loan helps them bring their bike home. In the following expert roundtable, we will navigate two-wheeler financing.
Why Should You Prefer Buying a Bike with a Loan?
Experts suggest buying a bike with a loan even if you have money to pay its cost upfront. Here are a few reasons why:
Savings Kept Intact:
If you pay the bike’s price upfront, you will reduce the savings you might need soon. Keeping those savings in a bank account, fixed deposit or another investment avenue may earn interest to increase wealth. However, if you use your savings to purchase the bike, you will reduce your savings, and the bike’s value will also depreciate over time.
Divide the Bike’s Cost into Instalments:
Taking out a lump sum from your finances causes a financial burden. As a result, you may need to make compromises in your regular lifestyle until your finances come back on track. Conversely, a Two wheeler Loan divides the cost into instalments, which you can repay monthly without affecting your finances. You can continue leading your regular lifestyle while adjusting a small EMI amount into our monthly budget.
Opportunity to Build Credit Score:
Your credit score depends on your credit behaviour, especially your repayment history. Borrowing a Bike Loan and repaying its EMIs on time helps you build a strong credit score, improving your eligibility for future loan applications.
Tax Benefits:
If you are a self-employed professional or an entrepreneur, you can claim tax benefits by borrowing a Two-wheeler Loan in your business’s name. You can also enjoy depreciation benefits, claim insurance, and recover maintenance and fuel expenses by taking a Bike Loan.
When is the Right Time to Get a Bike Loan?
A Bike Loan is a secured funding option available at affordable interest rates. Here are a few instances you must consider borrowing bike finance:
- When you do not have enough funds in your savings
- When you do not want to shell out a lump sum amount from your pocket
- When you come across special discounts during festive seasons
- When you plan to take more loans in the future and want to improve your credit score
- When you want to grow your money by investing it in other avenues instead of purchasing a bike with it
- When you want to claim tax benefits associated with a bike purchase
Factors Affecting Two-wheeler Loan Interest Rates
The Bike Loan interest rate you must pay depends on several factors, including the following:
Loan Amount:
When you borrow a large loan amount, lenders make a bigger investment in your bike finance, which increases their lending risk. If you default on the Bike Loan, the lender may not recoup the outstanding amount when auctioning your bike. A bigger loan amount also requires a longer tenure for repayment, making a recovery more challenging as the bike’s value depreciates with time. So, they may charge a higher interest rate to recover their potential loss.
LTV Ratio:
Many lending institutions cover up to 95% of the bike’s cost with a loan. For instance, you may cover up to 95% of the Hero Splendour electric bike price with a Bike Loan and pay the rest from your pocket as a down payment. However, borrowing a higher amount will significantly increase your interest payment.
Credit Score:
Your credit score is crucial to determining your loan eligibility. Bike finance companies use this factor to determine your repayment. Skipped EMIs, multiple hard enquiries, previous loan defaults, etc., are negative remarks lenders do not perceive positively in your credit report. While most lenders will reject your loan application, some may approve but charge a higher interest rate.
Monthly Income:
You can seek bike finance if your monthly income fulfils the lender’s minimum requirement. It is a secured loan that keeps your bike hypothecated with the loan provider until your loan is clear. However, you may find it challenging to repay your EMIs on time if you have a low income. It is a good reason for lenders to reject your loan application or charge you a higher interest rate. They also look at your work experience to determine your professional stability.
Debt-to-Income (DTI) Ratio: The DTI ratio is the percentage of income you are left with after covering all your current financial obligations. A higher DTI ratio indicates financial stress, making the lender sceptical about timely repayment. Therefore, maintain a DTI ratio of less than 40% to secure a Two-wheeler Loan at the best interest rate.
Steps to Follow for Bike Loan Application
Check out this guide to applying for a Two-wheeler Loan:
Select a Loan Plan:
Finalise a lender after comparing their interest rates, loan features, LTV ratio, processing charges, customer service, etc. Consider your expectations and repayment capacity when selecting a loan plan.
Confirm Eligibility:
Check the lender’s eligibility criteria to ensure you fulfil them, making the process straightforward.
Apply Online:
Many lending organisations support entirely online loan procedures. Just fill in a few required details and submit the necessary documents to apply. Ideally, pick a lender with minimal documentation requirements and quick processing methods.
Disbursal:
After checking your details and verifying the documents, the lender will send you a loan offer with details about the loan amount, LTV ratio, interest rate, etc. If you agree, accept the loan offer to get disbursal in a few hours.
There you have it! Here we conclude everything you must know about Two-wheeler Loan, including how to use a two wheeler loan EMI calculator. With excellent interest rates and easy availability, do not put your bike purchase on hold any longer. Take advantage of a Bike Loan and enjoy your new-found freedom without exhausting your savings.