Buying A Two-wheeler On Finance In India: A Complete Guide

You might think that applying for a two-wheeler loan is easy. While financing comes quickly, make sure to choose the right lender for the best interest rates, loan flexibility, low processing fees, and easy repayment options.

Financing your new motorcycle through a two-wheeler loan had never been easier. With trusted banks and NBFCs ready to help you purchase your two-wheeler through these financial privileges, it’s time to plan your purchase.

However, if you are taking a loan to finance your two-wheeler for the first time, it pays to know the right application process. Of course, you would be looking for low interest rates, flexible loan tenure, and instant disbursal. Whether you apply online or physically with your lender, this guide to obtain a two-wheeler loan should help you.

How to finance your two-wheeler through a loan?

Closely follow these steps to finance your new motorcycle through a two-wheeler loan in India.

      1.  Choose the model

Based on your preferences, select the right model that suits your needs and budget. Remember, when you purchase a bike through a loan, the creditor would be the first owner of the motorcycle. So, the lender won’t provide you with a cash amount. Rather, they would pay it directly to the dealer once you select the model. The ownership would get transferred to you only when you clear the loan.

    2.  Decide the loan amount

Once you choose the model, you would get a realistic concept of the loan amount you should apply for. Typically, you can get around 80% to 90% of the loan amount sanctioned through the two-wheeler loan. Have a sizable down payment ready to finance the rest. Paying a higher down payment can help you qualify for the loan faster. 

Remember, you won’t need a collateral while obtaining a two-wheeler loan. Since this is a secured loan, the two-wheeler itself would serve as a collateral.

    3.  Check your credit score

Your credit score, which reflects your money-handling habits and financial stature, largely determines your eligibility criteria. Before applying for a loan, check out whether your credit score looks healthy. A decent score, particularly those over 720 can help you qualify for these secured loans easily. A healthy credit score also helps borrowers qualify for low interest rates. 

In case your credit score doesn’t look too good, the lender might require you to get a co-applicant. The combined credit score might be enough to qualify you for the loan. In case you have a strong credit score, you can even choose from pre-approval loans.

    4.  Know your eligibility criteria

Different banks and NBFCs have their own set of eligibility criteria. Some of the common requirements of the lenders are:

• You need to be an employed Indian citizen, or one engaged in business or self-employment. Banks and lenders ultimately look out for a consistent flow of income.
• During the loan application process, you must be at least 18 years of age. On maturity, your maximum age should be around 65.
• The lender might require you to have a minimum annual income to qualify for the loan.
• Also, the lender would ask you for a residential proof where you have been living for at least a year.

       5.  Document requirements

Although the document requirements for two-wheeler loans are not as stringent as those for personal loans, your creditor would ask for certain documents. These include:

• The loan application form, which you need to fill up and submit
• Valid proof of age and identity such as Aadhar card, driving license, or voter card.
• Valid residential proof such as passport, telephone bill, or electricity bill.
• Income proof, including your salary slip, IT file, bank statements, or Form 16.
• Passport-sized photographs

However, if you have a pre-approval two-wheeler loan, the lender may not ask for your income proof.

      6.  Compare interest rates and repayment options

Now that you have all the necessary documents, compare the interest rates and repayment options. Usually, reputed lenders offer two-wheeler loans at low rates starting from around 9%. Borrowers with a poor credit score may have to shell out a high interest rate of up to 35% annually. 

Explore the repayment options to ensure that the EMI remains within your affordability. Usually, lenders offer two-wheeler loans with a tenure of up to 5 years. Try to clear the loan by two to three years so that you don’t end up paying too much interest. However, if you have several other ongoing loans and want to keep your EMI low, go for a longer tenure.

     7.  Understand foreclosure charges and processing fees

Some lenders charge a processing fee during the disbursal process. Usually, they club this fee along with the loan amount and it gets divided into small parts as you pay the EMI. Usually, this rate varies between 1% and 3% of the sanctioned amount. Go for a lender charging a low processing fee if the interest rate and repayment tenure suits you.

Besides, check out the foreclosure charges before applying for the loan. In case you decide to close the loan by repaying your dues before the scheduled period, the lender might charge you a small percentage of your dues. Typically, the foreclosure rate is lower than the interest rate. It’s wise to settle with a lender with low foreclosure charges.

    8.  Choose the lender and apply

Now that you have understood the eligibility criteria, repayment options, interest rates, and loan tenure, equate your EMI and apply for the loan. Approach a reputed bank or NBFC for the two-wheeler loan to qualify for competitive interest rates. The creditor would evaluate your application and process the loan. Digital applications usually get approved faster, so you may decide to apply for the loan online.

The bank would follow up with the dealer and initiate the process of purchasing your motorcycle.

Wrapping up

Applying for a two-wheeler loan is easy. However, you might land in a dilemma with too many financing options available. Make sure to compare interest rates and factor in the processing charges in your equation. This way, you can get a transparent insight into the actual cost you would be paying as interest and associated charges.