Choosing the Right 2-Wheeler for Your Loan: Factors to Consider
Article by Drivio | 14th Nov 23
Among the factors to weigh when financing a bike, you should seriously consider the impact of interest rates, repayment period, and down payment on your EMI payment capacity. This ensures that purchasing your dream bike doesn’t stress your finances.
Are you overwhelmed with a plethora of options while choosing the right lender to finance your new motorcycle? It’s imperative to consider the factors to weigh when financing a bike that significantly eases up the process. In the end, you would expect your EMIs to be affordable, right? A lot depends on the interest rate, loan tenure, and the overall cost of a motorcycle loan. On choosing right 2-wheeler loan factors, you can align your financial situation and preferences.
In this article, we have discussed the essential factors to consider when you finance a new motorcycle through a bank loan.
What Are Two-Wheeler Loans and How Do They Work?
Two-wheeler loans are necessary to finance your new motorcycle, bike, or scooter. Banks and NBFCs design these loans to help you purchase two-wheelers without shelling out a substantial amount upfront.
Like any other loan, lenders provide you with an amount that helps you to purchase the two-wheeler. This amount, known as the principal, covers the cost of your bike. Now, you need to repay the amount in EMIs over an agreed period, which includes the interest.
While considering the right choice insights, you should assess the rate of interest being charged. This rate determines whether your EMIs will be affordable or expensive. It’s wise to shop around for affordable loans where the rate of interest is reasonably low.
Several factors make two-wheeler loans popular in India. These include:
- Affordability of loans
- Multiple financing options
- Flexible loan terms
- Rising demand for motorcycles
Considering these perks, most owners decide to settle for loans to fund their motorcycles.
Factors to Consider When Choosing a 2-Wheeler Loan
Here are some factors to weigh when financing a bike through a bank loan.
1. Interest rates
The rate of interest that the lender charges on your two-wheeler loan is one of the first things to consider. It directly affects the overall cost of the loan, and therefore, its affordability.
Having a healthy credit score, preferably above 750, puts you in a position to negotiate a lower interest rate. Also, compare motorcycle loan offers from multiple lenders to find the most competitive rate.
The current interest rate in the market is determined on the basis of several factors. These include market conditions, inflation, and RBI policies. Over time, these rates can fluctuate, affecting the cost of borrowing 2-wheeler loans. In India, the rates of two-wheeler loans range between 9% and 20% with reputed lenders. In some cases, the rate can be higher.
As a borrower, you need to choose between fixed and floating rate interests. While fixed rates remain constant throughout the tenure of the loan, floating rates change as per market fluctuations. Depending on your risk tolerance and your analysis on how the future rates are likely to be, you need to decide on the type of interest rate.
2. Loan Tenure
Loan tenure refers to the period during which you borrow the two-wheeler loan. The shorter the tenure, the higher the EMI you need to fork out. To make your EMIs affordable, you can choose a longer tenure. In general, lenders allow you to choose tenure between two to five years.
Your EMIs become more manageable with a longer tenure since you spread the principal amount over several months. If you have ongoing monthly repayments for other loans or budget constraints, you may settle for a longer tenure. Although you end up paying more on interest, this reduces your financial stress.
However, if you are financially stable, go for a shorter tenure. This will make your loan more cost-effective.
3. Down payment
Down payment refers to the lump sum amount that you need to pay upfront while purchasing a two-wheeler. It’s a crucial aspect of your loan. Here’s why you should seriously consider the down payment:
- Reduced principal: Paying a down payment of 20% to 30% reduces your overall loan obligation. This means, you need to pay interest on a lower amount, which cuts down your monthly EMI, making it more manageable.
- Faster approval: Lenders consider a down payment as a sign of your commitment to the motorcycle loan. It also reflects your financial stability and lowers the risk associated with the loan. This translates to lower interest rates and loan terms.
While it’s common to make a down payment of up to 30% of the price of the motorcycle, you may even pay 40% or higher. This will eventually lower your interest costs.
Choosing the Right Loan Duration
While choosing right 2-wheeler loan factors, it’s imperative to choose the right loan duration. These insights will help you make a sound decision.
4. Evaluate your budget
Assess your monthly budget and the stability of your income at the outset. Take care that the EMI doesn’t strain you financially. You should be able to pay the EMI comfortably throughout the tenure. Use an online EMI calculator to get an estimate of the tentative EMI based on different loan tenures.
5. Consider future expenses
Before deciding on the tenure of your motorcycle loan, decide on your future financial expenses and obligations. In case you have any major expenses in the near future like medical bill payments or education expenses, go for a longer loan tenure.
6. Cost of interest
A shorter loan term is highly recommended if you aim to minimize the cost of your loan. For instance, a three-year loan will require you to pay the interest for a longer period compared to a two-year loan, making the latter more cost-effective.
Now that you are aware of the factors to weigh when financing a bike, you can make an informed purchase. Also, factor in additional expenses like insurance, road tax, accessories, and fuel costs when you purchase a bike. If you are a bike enthusiast, you need to budget for your accessories as well. Compare quotes from multiple banks and NBFCs before finalizing your decision to purchase your new motorcycle. With this guide, you can settle for an affordable financing option for your two-wheeler.