Two-wheeler loan and Gold loan: Know the difference?

Two-wheeler loans are designed specifically to help you finance your new motorcycles. Although other options like gold loans are available, it’s wise to go for these specialized financing options considering low interest rates.

If you are bracing up to purchase a new motorcycle, choosing the right financing option can land you in a dilemma. The popular loan options include motorcycle loans, personal loans, and gold loans. Given that personal loans prove to be expensive with high interest rates, it’s wise to choose between gold and two-wheeler loans. With these financial products, you can fulfill your dream of owning a motorcycle without straining your finances.

However, it’s wise to understand how a two-wheeler loan is different from a gold loan. This is exactly what we have discussed in this article. Understanding these differences can assist you find economic financing solutions for your new bike. With this loan comparison, we can help you make an informed decision.

What is a two-wheeler loan?

As the name suggests, a two-wheeler loan is specifically designed to help you purchase motorcycles or scooters. Reputed banks and NBFCs offer motorcycle loans at reasonable interest rates. The loan amount funded by the financial institutes is typically 80% to 90% of the on-road price of the vehicle. This includes the cost of your motorcycle, while you need to pay extra for the insurance and registration charges. Typically, a two-wheeler loan comes with a tenure of up to five years.

 Features & Benefits

The multiplicity of benefits that comes with motorcycle loans makes them one of the best financing options.

• Flexible loan amount: Based on your requirements and the policies of the lenders, you can choose two-wheeler loan amounts ranging from a few thousand rupees to several lakhs. The income of the borrower, repayment capacity, and credit score largely determine this eligibility.
• Flexible repayment tenure: The repayment tenure of two-wheeler loans is flexible, and can range from one year to five years. If you are undergoing financial stress, simply opt for a longer tenure to keep your EMIs manageable. However, repaying your debt in a shorter tenure would save you on the interest.
• Competitive interest rates: Established financial institutions like banks and NBFCs offer two-wheeler loans at competitive rates of interest. Thus, purchasing a motorcycle using a two-wheeler loan proves to be more cost-effective compared to a personal loan. The rate of interest you qualify for depends on several factors such as your debt-to-income ratio, loan tenure, the loan amount, your credit score, etc.
• Minimal documentation: Obtaining a two-wheeler loan digitally requires minimal documentation. This makes the loan application process hassle-free and fast. Typically, the lender would look out for your income proof, identity, and repayment capacity.
• Instant approval and disbursement: Many lenders operate on digitized platforms. They ensure fast approval of the amount once they receive your loan application. Again, if you have a pre-approved two-wheeler loan, you can get it disbursed in a few days.
• No collateral required: Given that most motorcycle loans are unsecured, you need not provide any security or collateral against the loan amount.

What is a gold loan? 

A gold loan is a financial privilege where you need to pledge your valuables like gold ornaments or jewellery as collateral to obtain funds. The loan amount that financial institutions sanction is a percentage of the value of the pledged jewellery. So, if you have gold ornaments, you may consider pledging them for funds and purchasing your motorcycle.

Features & Benefits

Gold loans bring you several strategic benefits that make them different from two-wheeler loans.

• Loan amount: Unlike motorcycle loans where your credit score and income determine your loan amount, gold loans are based on the purity and value of the pledged ornaments. Typically, the loan-to-value (LTV) ratio ranges from 75% to 90% of the value of the gold.
• Fast processing: Since the lending institution need not validate your credit score or income, gold loans get processed almost instantly. The lender simply validates the purity of the ornaments. Thus, you can obtain funds by pledging your jewellery almost instantly.
• Flexible repayment options: Applying for a gold loan offers you flexible repayment options. So, you can choose to repay the loan at regular installments. Alternatively, you can repay it as a lump sum amount when the loan tenure ends. Under these systems, you need to pay the principal amount at the end.
• Lower credit score requirements: Even if your credit score doesn’t look too good, you can qualify for a gold loan. The fund remains secured through the gold collateral. This makes the lenders lenient regarding your creditworthiness.
• Lower interest rates: Compared to personal loans and other unsecured loans, gold loans generally come with lower rates of interest. This rate depends on the loan tenure, amount, and the policies of the lender.
• Security of the gold: The ornaments and valuables you pledge remain safe and secure with the bank or creditor throughout the loan tenure. Generally, they store the pledged valuables in secure vaults. On repaying the loan, you get back the ornaments.

 The loan comparison guide: Two-wheeler loan or gold loan?

 Now that you know both of your loan options, it’s time to decide which product you should go for. Based on your financial condition and other aspects discussed below, you need to make your decision.

• Purpose of the loan: If the sole purpose of obtaining the loan is to finance your motorcycle, it’s logical to apply for a two-wheeler loan. However, if you already own gold jewellery and a motorcycle loan turns out to be expensive due to your poor credit score, you may get a gold loan at a lower interest rate.
• Loan amount: Compared to gold loans, lenders typically offer higher amounts as two-wheeler loans. With gold loans, you simply get a percentage of the value of your jewellery. However, banks and NBFCs sanction two-wheeler loans based on the price of the vehicle.
• Repayment capacity: Are you comfortable in making monthly repayments through EMIs for your motorcycle loan? Or do you want to pay a lump sum amount at the end of the loan tenure? Based on your repayment capacity and flow of funds, consider your loan options.

Wrapping up

While weighing different loan options, consider the interest rate on both types of loans. In India, banks and NBFCs offer motorcycle loans starting at 9% per annum. On the other hand, gold loan interest rates are a little higher, starting from 10% per year. A careful evaluation of the total loan you would be paying throughout the loan tenure would enable you to choose the right loan.

Considering all these aspects, it makes sense to apply for a two-wheeler loan to purchase a motorcycle.