Get To Know The Impact Of Loan Amount On Two-wheeler Loan
Article by Drivio | 15th Jun 23
Have you decided on the loan amount you need to finance your new two-wheeler? Remember, this amount would influence your down payment, EMI, creditworthiness, loan repayment tenure, and rates of interest. It’s crucial to weigh your repayment capacity before finalizing the amount you should borrow.
Motorcycle owners habitually turn to two-wheeler loans to fulfill their dreams. If you are planning to purchase a two-wheeler, it’s wise to evaluate how the loan amount affects your repayment, loan tenure, and rates of interest. Of course, the loan amount largely depends on your borrowing capacity and repayment capabilities. The way you handle your loans determines your overall financial health.
In this article, we have discussed how your loan amount affects two-wheeler loans. As an informed borrower, you can make intelligent decisions while making your purchase.
What is the actual loan amount on a two-wheeler loan?
The loan amount on a two-wheeler loan refers to the principal sum that you have borrowed from the creditor or lender. Reputed banks and NBFCs cover up to 90% of the value of the two-wheelers through the loan amount. Therefore, your loan amount should be equal to almost 90% of the cost of the motorcycle. However, some lenders also sanction additional amounts to cover the insurance charges and registration costs of the motorcycle. In these cases, the loan amount includes these costs too.
Before finalizing the loan amount, it’s crucial to understand your loan eligibility. Accordingly, you should decide the loan amount that the bank would finance.
How does the loan amount influence other aspects?
Have you wondered how your loan amount can influence your EMI, loan tenure, interest rates, down payment, and your overall financial stability?
1.Impact of loan amount on Monthly EMI
Your loan amount has a direct implication on your EMI, or the amount you repay each month to the lender. If you decide to take a bigger loan, be prepared to repay a higher EMI. If you decide to buy an expensive motorcycle, the high monthly EMI would affect your budget. Therefore, it’s wise to evaluate your income and financial outflow before you decide the loan amount to borrow.
Make sure not to over-borrow even if you fulfill the loan approval criteria. This will help you keep financial stress at bay. Particularly, if you have other ongoing loan repayments, be strategic while calculating the EMI that you can comfortably pay.
2.Impact of loan amount on the tenure of loans
The loan amount you choose goes a long way in influencing the tenure of the two-wheeler loan. In general, larger loans come with longer repayment periods. When you agree to repay a two-wheeler loan over a longer tenure, the monthly EMIs may be low. However, you end up paying more interest over the loan tenure.
Financial advisors recommend striking the right balance between the loan amount, loan tenure, and your financial goals. This way, you need not financially stress yourself while repaying the two-wheeler loan.
3.Impact of loan amount down payment and affordability
The loan amount also determines the upfront payment you need to pay while purchasing a two-wheeler. In general, lenders sanction up to 90% of the loan amount. If you decide to purchase a luxury bike or a sports motorcycle that involves a higher loan amount, you need to shell out a significant down payment.
Moreover, if your credit score doesn’t look too good, lenders might agree to finance only 70% or 80% of the value of the motorcycle. If you don’t have the necessary down payment to manage the rest, you need to settle for a smaller loan amount and thereby a less expensive motorcycle.
On the other hand, you may voluntarily decide to pay a higher down payment to keep your EMIs affordable. In this case, a high loan amount would require you to pay a higher down payment.
4.Impact of loan amount oncreditworthiness and interest rates
The loan amount you decide to take from the bank or NBFC also influences your rate of interest and creditworthiness. Before sanctioning a two-wheeler loan, lenders evaluate the stability of your income, credit record, and debt-to-income ratio. As the standard loan approval criteria, financial institutions carefully evaluate the repayment capacity of borrowers.
When you decide to settle with a higher loan amount, the lender might perceive you as a high-risk borrower. This might invite a higher interest rate. To qualify for a lower interest rate, make sure to maintain a healthy financial profile and a high credit score.
Evaluating the impact of loan amount
Borrowers need to consider these factors to comprehensively evaluate the influence of loan amount on their two-wheeler loans.
- Financial stability: Before applying for a two-wheeler loan, consider your financial stability. This includes evaluating your income, expenses, and savings. Accordingly, you need to determine the loan amount. When you take the loan, this amount should align with your repayment capacity without straining you financially.
- Affordability of the loan: It’s crucial to be realistic while calculating the EMI on different loan amounts. Remember, the rates of interest would vary with the loan amount. So, the EMI would be different for each of these amounts.
- Cost of interest: Have you considered the overall interest outflow over the entire loan period? With a higher loan amount, you need to pay more interest. This would affect the overall cost of your purchase. It’s wise to compare interest rates with the leading banks and NBFCs before finalizing your lender.
- Future financial goals: Assess the impact of your loan amount on your future financial goals. For instance, if you take a large loan to finance your motorcycle, you may not be eligible to take an automobile loan or a home loan too soon.
The loan amount largely influences your loan eligibility, EMI, interest rate, and financial well-being. Therefore, it’s wise to carefully evaluate your repayment capacity before setting your budget to purchase a two-wheeler.
Experts recommend carefully weighing your financial condition, affordability, and long-term financial goals before deciding the loan amount. Ideally, you need to strike a balance, so that you can enjoy a smooth and manageable repayment scheme while enjoying your new two-wheeler.