Two-wheeler loan EMI: Impact of the rate of interest

If you are planning to finance your new motorcycle through a two-wheeler loan, try to get one with a low interest rate. This way, you will manage to keep your EMIs low.

Purchasing motorcycles and bikes is easier than ever before, thanks to low-interest two-wheeler loans from reputed banks and NBFCs. With manageable EMIs, owners can simply split their liabilities into small amounts each month. Just like any other loan, a two-wheeler loan comes with a pre-specified tenure and interest rate. Most banks and NBFCs use EMI calculators while briefing their clients about their monthly liabilities.

Now, how do you think the interest rate on your two-wheeler loan would impact your EMI? It’s imperative to understand the implications of changing interest rates on your loan. Besides, each lender offers loans at different interest rates. Unless you know how these rates impact your monthly cash outflow, you may find yourself financially stressed.

Bike loans are flexible, and come with tenures ranging from two to five years. Depending on the interest rate you qualify for and your repayment capacity, you can choose the tenure. In this article, we will discuss the loan rate impact on EMI. As an informed borrower, you can refrain from selecting a loan with unfavourable rates of interest

How does interest rate on two-wheeler loans affect your EMI?

Typically, interest rates on two-wheeler loans range from 7% to 25%. With some banks or NBFCs, the rate of interest may lie slightly outside this bracket. Naturally, when you purchase a motorcycle, you would try to settle with the bank or NBFC offering the lowest rate of interest. The higher the interest rate, the more expensive would be the loan. Naturally, a high interest rate translates to a higher EMI.

Suppose, you qualify for a two-wheeler loan at an interest rate of 8%. Your monthly EMI for 4 years would be lower than what you would be paying had the interest rate been 20%.

Now, you might be wondering how to qualify for a low interest rate on two-wheeler loans. We have discussed this in the later sections for your convenience.

Before finalizing the lender to work with, it’s wise to compare interest rates at different banks and NBFCs. Apart from the interest rate, also consider the processing fee and foreclosure charges applicable.

Fixed and variable interest rates on two-wheeler loans

Interest rates on two-wheeler loans can be of two types. These are fixed rate interest loans and variable rate interest loans. When you decide to go for fixed rate interest two-wheeler loans, the rate gets locked at the current market rate. So, even if the market rates alter later on, you continue to pay your EMIs at the decided rate. This can particularly prove beneficial for borrowers when the market rate of interest increases at a later date. So, if you had taken the two-wheeler loan at 8% interest and the later the bank increases it to 8.3%, you will continue paying your EMIs at 8%.

Variable interest rate two-wheeler loans, as the name suggests, come under the impact of changing interest rates. As you know, RBI hikes or lowers the repo rate from time to time. As a result, variable interest rates keep fluctuating. In case you had taken the loan at 8% and it increases to 8.3% after six months, your EMI would increase marginally. This explains why most two-wheeler owners prefer locking the rate of interest with fixed rate loans.

How to lower your EMI if the interest rate rises?

Now that you have a basic idea about loan rate impact on EMI, let’s find out whether you should go for a fixed or variable rate interest while purchasing your motorcycle.

In case you find that the current intertest rate on your two-wheeler loan is too high and the market rates are likely to come down after a few months, it’s wise to go for a variable rate of interest. This will help you take advantage of the lower EMIs as a result of dropping interest rates.

However, you may have already locked your interest with a fixed-rate loan at the time of the agreement. If you find the EMIs growing expensive, consider transferring your loan to another lender offering a lower intertest rate. Lots of banks and NBFCs are ready to finance two-wheelers and take over existing loans at a lower rate of interest. As an informed client, make sure to take advantage of low-rate interest loans.

If you are switching to another lender, take care of the processing charges, balance transfer charges, and foreclosure fees. After factoring in the expenses you would incur in the process, weigh the net benefit you are eligible for once you move to a different lender.

How to qualify for a low interest rate on your two-wheeler loan? 

Well, this is where your money-handling habits and financial profile come into play. Of course, you would be comparing the rates provided by different banks and NBFCs. As you narrow down the options, you can choose the right lender providing the financial privilege at a reasonable rate of interest.

Besides, the interest rate you qualify for also depends on other factors. These include:

      1.  Loan tenure

Choosing a long loan tenure puts the lender at greater risk. To keep your interest rate low, go for a shorter tenure, preferably between 2 and 3 years.

      2.  Credit score

Although a two-wheeler loan is unsecured, banks and NBFCs would check your credit score. This will give them an idea about your sense of financial responsibility. With a high credit score and low credit utilization, you can qualify for a loan at low interest rate. This is because, creditors perceive you as a low-risk borrower.

      3.  Down payment

Although some lenders would be willing to finance 100% of the amount, it’s wise to make a sizable down payment. An upfront payment of at least 50% of the bike’s value lowers your risk profile, thereby qualifying you for a low interest rate.

Wrapping up

Now that you are aware of the loan rate impact on EMI, be strategic with your preferences while taking a two-wheeler loan. Scrutinize the market rates and conditions before settling for a fixed or variable rate interest loan. Also, try to make a sizable down payment and choose a shorter loan tenure to qualify for a low interest rate. This way, you can keep your EMIs manageable and refrain from stressing yourself financially.