How to use a two-wheeler loan for personal use?

You probably have a dream bike on your mind that you aspire to purchase. As you scan through your financing options, two-wheeler loans and personal loans appear to be the most viable funding instruments.

Reputed banks and NBFCs have come up with specially designed financial privileges in the form of two-wheeler loans. On obtaining these loans, you can purchase your motorcycle or scooter. Financing your two-wheeler is easy, thanks to the plethora of low-interest loans available.

Now, you might be in a dilemma between the use of a personal loan vs two-wheeler loan. While banks and NBFCs entitle you to use a personal loan for any purpose, a two-wheeler loan is meant to finance the motorcycle itself. So, you cannot use a two-wheeler loan for any other purpose.

For what purposes can you use a two-wheeler loan?

Unlike a personal loan, you can use your two-wheeler loan only to finance the purchase of your motorcycle or scooter. When you finance the two-wheeler through a bank or NBFC, the financial institution becomes the first owner of the asset. You, on the other hand, are entitled to use the motorcycle even if the ownership doesn’t belong to you. Only after clearing off the loan after the stipulated tenure, the lender would transfer full ownership to you. 

This implies that you cannot use a two-wheeler loan for any other purpose other than purchasing the vehicle. Comparing personal loan vs two-wheeler loan, the former brings you greater freedom to spend the money. Besides, you can finance other expenses like insurance and road tax through a personal loan.

In a nutshell, you cannot use a two-wheeler loan for any personal purposes apart from funding the motorcycle.

What is a two-wheeler loan?

A two-wheeler loan is a secured financial privilege you get from your bank or NBFC. The purchase of your motorcycle is backed by a lien. As per this legal claim, the lender reserves the right to repossess the motorcycle in case you fail to make timely repayments. The lien gets released when you repay the entire loan. 

Typically, banks finance up to 80% or 90% of two-wheeler loans. You need to make a down payment of 10% to 20% when you purchase your bike. The interest rate on a two-wheeler loan is lower than that on a personal loan, and remains around 10% to 12%.

What is a personal loan?

A personal loan is an unsecured financial privilege that you can spend as per your requirements. There’s no restriction on how you use the amount. This makes a personal loan more versatile compared to two-wheeler loans. You can obtain a sizable amount to pay 100% of the cost of your bike and manage the insurance and tax expenses as well.

However, personal loans attract high interest rates, which typically range between 16% to 35%. Since it doesn’t require any collateral, you don’t bear the risk of losing the bike if you fail to repay on time. 

Personal loan vs two-wheeler loan: The differences

Let’s dig deeper into the differences between a personal loan and a two-wheeler loan in detail.

       1.Collateral

The presence of collateral defines the prime difference between a personal loan and a two-wheeler loan. In the case of a motorcycle loan, the bank signs a lien, which secures the loan and the bike serves as the collateral. However, in the case of a personal loan, the amount remains unsecured and there’s no collateral.

       2.Rate of interest

 The absence of collateral makes personal loans expensive. Therefore, you would be paying a higher EMI on your personal loan compared to your two-wheeler loan.

On the other hand, secured loans come with comparatively lower interest rates. Financing your motorcycle through a two-wheeler loan would be a good idea to save on your interest.

       3.Loan tenure

Typically, the loan tenure for two-wheeler loans ranges from three to five years. On the other hand, you get to enjoy more flexibility in case you take a personal loan. With these unsecured loans, the loan tenure ranges from a few months to as long as eight years. 

If you are currently shelling out several other EMIs, it would be logical to go for a longer tenure to keep your cash outflow manageable. Even if you end up paying more over the course of time, a longer loan tenure would help you reduce financial stress.

       4.Chances of approval

Compared to personal loans, it’s easier for you to qualify for a two-wheeler loan. The reason is, bankers consider your credit score to be of high priority while processing unsecured loans. They expect the borrower to be financially responsible. In case your credit score looks poor, they might decline the loan.

Although banks and NBFCs check out your credit score while processing two-wheeler loans, you can qualify even with a low credit score. Since the two-wheeler works as collateral, banks readily process these loans.

Conclusion

If you are planning to take a loan to finance your motorcycle as well as its insurance, go for a personal loan rather than a two-wheeler loan. As we discussed, the purpose of a two-wheeler loan is solely to finance the vehicle and nothing more. You cannot use a motorcycle loan for any other personal purpose. Reach out to reputed banks and NBFCs to explore low-interest loans under both these categories. Depending on how you are financially poised, you need to choose between personal and two-wheeler loans.