Right Choice for Two-Wheeler Loan: Fixed Interest Rates vs Floating Interest Rates

  • Two Wheeler Loans
  • 8 Months ago
Right Choice for Two-Wheeler Loan: Fixed Interest Rates vs Floating Interest Rates
HIGHLIGHTS

  • Key Components of a Two-Wheeler Loan
  • How Does the Interest Rate Work on Bike Loans?
  • How Does Calculating the EMI Beforehand Help You?


If you’re exploring the market for buying a two-wheeler, the options available are plenty. From the commuter ones to the higher-end sports models, the varieties available are abundant. Irrespective of whichever model you chose, it might be difficult to finance it entirely from your pocket, which is why you might consider the financing options available.  

With the growing demand for two-wheeler loans in India, banks are doing all they can to meet our needs and are giving out various attractive funding options, such as decent interest rates, exciting festival discounts, and higher repayment periods. With the number of financers available in the market being ample, offering highly competitive interest rates and flexible repayment terms, you must know the basics before setting out to take a two-wheeler loan. Availing a loan without knowing the repayment liabilities associated with it might damage your financial security in the long run. Therefore, it is crucial that you use an EMI calculator and find out clearly how interest rates work on bike loans before finally proceeding and applying for a loan.

Key Components of a Two-Wheeler Loan

Just like any other loan, when you’re availing a two-wheeler loan, you need to repay the same through equated instalments or EMIs, which include interest. There are primarily three factors that affect the number of EMIs you will be paying. Loan calculators make your job easier by taking these three factors into consideration and give you a holistic and approximate view of how many EMIs you need to pay. 

As a borrower, you only need to enter the three parameters as per your preferences, and the rest of the job will be done by the calculator. You will have a clear idea of the instalments and other necessary and relevant data before you apply for the loan. 

Below are the key components that need to be considered:

  • Principal: Put simply, the principal or the main sum is the total amount you want to borrow from the bank or the NBFC of your choosing. If the principal amount is higher, you would have to pay higher amounts as EMIs and vice-versa. So, you can aim to restrict the ticket size of the bike loan and, as much as possible, try to self-finance it in order to ensure that your monthly bills are kept under control. You must enter the principal sum information in the area marked accordingly in the loan calculator without any mistake.
  • Interest rate: In addition to the repayment of the sum of the principal, creditors must still pay interest on it. The interest rate refers to the percentage of interest on your two-wheeler loan charged by the bank or NBFC. Higher interest rates would ultimately lead to higher loan prices, meaning higher EMIs and vice versa. The interest rate for a bike loan, calculated by your lender, cannot be regulated. However, a comparison amongst several lenders’ interest rates can be made, and you can ultimately stick to the bank that charges the lowest interest rate. You can also choose between the fixed interest rates and the floating interest rates. 
  • Tenure: Tenure is the net term of your repayment period on your loan. If you want to keep the tenure limited to a year, the loan will be repaid faster with higher EMIs than if you choose to have a long term. It is your financial situation that should help you determine the tenure of your two-wheeler loan. If your wallet requires it, it’s always prudent to clear dues earlier. But if you’re not in a well-off state, it is always better to extend the tenure to pay off with smaller EMIs. 

How Does the Interest Rate Work on Bike Loans?

Choosing between fixed and floating interest rates has been an eternal dilemma for every loan borrower. Since both banks and NBFCs offer both fixed and floating interest rates, it is best to choose what suits us the best. As the interest rate is the most significant and vital aspect of any loan, it is crucial to choose the right one to prevent financial stress or to default during the loan period.

  • Fixed interest rate: Under the fixed interest rate scheme, the interest rate remains constant, and a fixed amount is charged as EMI at equivalent intervals according to the tenure of the loan. The benefit of the fixed interest rate is that it does not differ even with fluctuations in the Indian financial market conditions. When the market is down, a fixed interest rate becomes the first and the preferable option. By blocking or fixing the rate according to their desire, customers take the opportunity. Put simply, if you do not believe a stock market would fall below a certain point or expect an increase in interest rates, it would be better to choose a fixed interest rate.
  • Floating interest rate: The unpredictable and constantly changing interest rate is called the floating interest rate according to the business scenario. This rate depends on the base rate provided by different lenders, so the interest rate will be automatically revised as soon as the base rate changes. Floating interest rates are comparatively cheaper than fixed interest rates. The fixed interest rate of interest is usually 1% to 2.5% above the floating interest rate. The rise and fall in the floating interest rate are temporary, as it changes according to developments in the market and economy. For short-term loans like bike loans, the floating interest rate could be a preferred option if you’re a risk-taker. 

How Does Calculating the EMI Beforehand Help You?

Calculating the EMI is instrumental while planning your repayment and financial future during the loan tenure. Here are some aspects that become easier when you calculate it beforehand:

  • Know the credit limit that you can avail without overburdening your finances: It becomes quite tempting to go overboard and borrow an unnecessarily large amount when opting for a loan. With regard to EMIs, though it may help you buy your dream bike, it will disrupt your finances. Hence, you should make an educated decision using a calculator to calculate your EMIs before you take a loan. If the payments for your selected loan are just too high, aim to adjust the principal amount and tenure before you obtain the desired result. You may use a bike loan calculator to prepare your loan repayment budget so that you can reliably pay off your EMIs without losing much.
  • Helps you choose the most suitable loan tenure: You might be tempted to choose the longest term available, as it means smaller EMIs, but is it the right choice? The longer the term of the loan, the more interest you will pay. An EMI calculator for bike loans demonstrates how the cumulative interest charged by the credit rises as long as you plan to repay. Therefore, shorter tenures will allow you to keep a check on your total costs. Different combinations of tenure and principal can be attempted to balance interest payments with EMIs in the right way and hence choose the one that suits you the best. An EMI calculator helps you speed up this decision. 
  • Indispensable for comparing the various loan offers: The most attractive benefit of calculating the EMI beforehand is that you can easily compare the interest rates available in the market with multiple lenders. Based on your preferred bank or NBFC, your two-wheeler EMIs will differ considerably at various interest rates. The best way to assess the right option for your case is to compare the different loan offers available. Using an EMI calculator, you can skip these otherwise time-consuming calculations leaving no scope for error. 

You can use this EMI calculator by Shriram City to easily calculate your EMI and go for the best option. However, if you’re looking for a two-wheeler financing option, look no further—Shriram City is here to your rescue. With the lowest interest rates, minimal documentation, and quick disbursement, don’t wait to bring your dream bike home. Apply for a loan here!