The impact of credit score on two-wheeler loan eligibility

The impact of credit score on two-wheeler loan eligibility

Loans by Team Drivio | 18 Jun 2024

Owning a two-wheeler happens to be a privilege, considering the ease of commuting around the city. Comfortable rides and swift commuting are some of the prime reasons why people buy motorcycles and scooters. Given that purchasing a two-wheeler requires a sizable capital, most owners vouch for two-wheeler loans. However, do you know that your eligibility for these loans depends on your credit score

If you are financially responsible, your creditworthiness will readily fetch you low-interest loans to finance your two-wheeler. On the other hand, people with a low credit rating may find it challenging to qualify for one. Reputed financial institutions like banks and NBFCs examine your creditworthiness before granting you these loans.

Let’s find out what a good credit report should look like, and how you can qualify for a low-interest rate loan.

Why do creditors look for your credit score for sanctioning loans?

Banks and NBFCs check your credit score to understand your creditworthiness. Your credit score explains your current financial stature and money-handling habits. When you apply for a loan, your lender would want to verify that you are likely to make timely repayment. If you have a high score in your credit report, you can win their confidence. In the process, you can qualify for a lower interest rate

As a borrower, you need to demonstrate high credibility when it comes to handling finances. People with high credit scores habitually fulfil their financial commitments. This explains why their eligibility to obtain these loans are higher.

What is a good credit score to get a two-wheeler loan?

Banks and other financial institutions consider a credit score above 750 to be healthy. So, different lenders have their individual criteria for sanctioning motorcycle loans based on your credit history. If your credit profile looks healthy with a score above 750, you can easily obtain the loan at a low interest rate.

You can still qualify for motorcycle and scooter loans with your credit score between 600 and 750. However, some lenders might charge a higher rate of interest since they consider this range to be average.

If your credit score dips below 600, they might ask for collateral. Besides, the high interest rate can take your EMIs beyond your affordability. Missed payments can impact your credit score adversely and weaken your eligibility for the loan. So, it’s always advisable to maintain a healthy credit score.

How does a poor credit score impact your eligibility for two-wheeler loan?

Having a low credit score can deprive you of your two-wheeler loan. Here’s what happens when you fail to be financially responsible. 

High credit utilization or previous loans

In case you already have several ongoing loans, your credit utilization would be high. In these situations, your lender is likely to decline your two-wheeler loan. Having a high credit utilization or too many credit accounts portrays you to be financially at risk. Unless you can show an increment in income, it would be challenging to qualify for your motorcycle loan.

Missed or delayed payment

 In case you previously faltered on making your repayment, your credit score should have taken a blow. Usually, records of missed payments remain on your credit report for three years. Along with this, the low credit score would deprive you of finding low-interest two-wheeler loans.

Outstanding credit card bills 

Creditors consider outstanding credit card bills to be missed payments. Each month, you need to repay the bills on your credit card by a specified date. If you fail to make timely payments, credit rating agencies consider them to be outstanding. When you consistently keep the amount overdue, your credit score starts dipping.

Multiple loan applications

Your credit report wouldn’t look too impressive if it shows that you applied for multiple credits in a short span. As a thumb rule, you shouldn’t apply for more than one credit card of loan per month. Too many queries leave a negative impact on your credit score. This implies you wouldn’t qualify for low interest rate loans when you plan to purchase your two-wheeler.

Can you get a two-wheeler loan with a bad credit report?

Financial institutions sometimes finance motorcycle loans even if your creditworthiness doesn’t look too good. Also, you might not qualify for the loan from a first-rated bank. This implies that you need to shell out a higher interest rate.

Here are certain tips to improve your eligibility for your two-wheeler loan even with a poor credit score.

Make a higher down payment

If your credit history doesn’t look shimmering, make a higher down payment. This way, you would have lower EMIs for repayment each month. Usually, financial institutions roll out bike loans to fund up to 90% of the cost. Try to make at least 30% down payment, leaving another 70% for the bank to finance. Since the lenders would perceive you to pose marginally lower risk, they might consider sanctioning the loan.

Show collateral

Usually, if you have a good credit score, you won’t need a collateral to obtain a two-wheeler loan. However, if your credit report is poor, the creditor might ask for collateral. You need to show other assets based on which your loan amount would be sanctioned.

Get a co-signer

If you lack creditworthiness to obtain a two-wheeler loan, apply for the financial privilege along with a co-signer. When you apply for the loan along with a guarantor, the person would be equally responsible for the repayment. The lender would also consider the co-signer’s creditworthiness while sanctioning the loan. Also, if you want to purchase a high-end motorcycle, having a co-signer will help you qualify for higher amounts.

Take Away

When you apply for two-wheeler loans, most lenders don’t ask for a collateral unless your credit report looks too bad. We have already discussed your chances of eligibility based on the standard parameters including your credit score. Now that you know how crucial your credit history is, try to keep it spotless. Regardless of the type of loan you take, make sure to pay the EMIs on time.