Two-wheeler loans have made it super easy to get our dream bikes, because you won’t have to make any concessions or worry about running out of savings. The two-wheeler you want can be quite affordable or classified as a high-end motorcycle depending on various factors, such as engine capacity, brand, and features of the motorcycle. For this reason, paying the full amount up front may not be feasible for future bike owners. Also, according to reports, more than 75% of registered two-wheelers in the country are purchased through two-wheeler loans. Thus, individuals rely on banks and NBFCs to obtain two-wheeler loans at competitive interest rates.
There are several aspects you need to consider before applying for a bike loan. Loan amount, repayment period, processing fees and interest rates are some of the most important considerations. Typically, lenders provide financing for 60-100% of the vehicle’s on-road price, and the repayment term can range from 12 months to 60 months. Interest rates, depending on several factors, can vary from 8.3% to 28%, and it is imperative that you choose a lender that offers the lowest interest rate in the market.
Factors that influence interest rates
The interest rate of a bicycle loan determines its viability. The higher the interest rate, the greater the amount you must repay by the end of the loan term. Use a bike EMI calculator to calculate the monthly EMI of the bike you have to pay. Planning this in advance will keep your monthly budget sorted. Once you have confirmed your eligibility for the two-wheeler loan, it is prudent to check the interest rates offered by the various lending entities. Interest rates differ from one credit institution to another; however, lenders consider certain factors that may affect the interest rate.
- Credit score and credit profile
The main factor that determines the interest rate is your credit score. If you have a good credit score (above 750), you can get a higher loan amount at an attractive interest rate. A high credit rating assures the lender of your creditworthiness and presents you as a responsible borrower. The lending entity assesses your credit profile, including your repayment history for previous loans. If you’ve never defaulted or missed a single payment, you can get bike financing at a low interest rate.
- Employment status and monthly income
Another important factor is your employment status. If you are an employee and have worked in the same company for more than 12 months, you will be considered a candidate with a stable job and a stable income. This reduces the chances of you missing payments or not repaying a loan. Additionally, your monthly income is also important, as the lender needs to ensure that you earn enough to be able to pay the EMIs on time. So, you need to consider your employment status and monthly income while checking your eligibility for the two-wheeler loan.
- Debt-to-income ratio (DTI)
Your debt-to-income ratio (DTI) basically compares your monthly expenses to your pre-tax income. This allows the lending entity to assess your financial responsibilities and monthly expenses, such as your rent and debt, and whether you can take out another loan while taking into account your monthly income. A debt ratio of less than 40% is ideal when applying for a loan for two wheels and reduces the interest rate on your bicycle loan.
The amount you pay upfront as a down payment also affects the interest rate. If you pay 30-40% of the vehicle’s on-road price as a down payment, you can qualify for a low bike loan rate on your bike loan. However, this is not a prerequisite, as having an impeccable repayment history will allow you to benefit from competitive interest rates.
Do salaried individuals get better interest rates for two-wheeler loans?
Apart from employment status, lenders also consider the type of employment. That is to say, the lending entity will check whether you are employed or self-employed. While employees and the self-employed can get two-wheeler loans, lenders tend to view employees more favorably. Indeed, salaried people have a stable source of income and are more likely to pay IMEs on time. Also, if you are self-employed, the amount you earn each month may vary depending on external factors. This can cause lenders to charge a “risk premium”, which results in a higher interest rate.
Thus, salaried people with good credit ratings can benefit from low interest rates on bike loans. However, lenders such as Bajaj Markets offer competitive interest rates with no minimum CIBIL score mandate. In addition, once you have verified your eligibility for the two-wheeler loan, you can benefit from financing at 100% of the on-road price of the two-wheeler. Whether you are employed or self-employed, you can benefit from low-cost EMI with flexible repayment terms.
This is a joint publication.
Read all Recent news here