What Factors affect the Two Wheeler Loan Interest Rate

  • Two Wheeler Loans
  • 1 Months ago
Factors Affecting Bike Loan's Interest Rate
HIGHLIGHTS

  • Planning to get a two-wheeler?
  • What is a two-wheeler loan?
  • Factors that affect my two-wheeler loan interest rate


Planning to get a two-wheeler?

Have you always thought about owning a two-wheeler? The first stage in acquiring a two-wheeler is to determine what type of bike you can afford. You might fantasize about owning the most expensive bike in the world, but it is best to figure out a price that works for both your bike and your wallet. Calculate the monthly Bike loan EMI, down payment amount, bike loan interest rate, and loan duration to arrive at this conclusion.

When looking for bikes, don't be discouraged if you see an outrageous price tag and decide not to buy your ideal bike. Two-wheeler loans accommodate clients of all ages by allowing them to make only a small down payment upfront, with the rest of the loan paid in Equated Monthly Installments (EMIs).

What is a two-wheeler loan?

Are you planning to buy your dream bike in the coming month, and you do not have enough cash to purchase the bike upfront? Then, A two-wheeler loan is a simple, hassle-free way to finance the purchase of your preferred two-wheeler. The loan amount, and any applicable interest, can be repaid over a certain period in Equal Monthly Installment payments or EMIs. Both salaried and self-employed persons can get a bike loan.

Factors that affect my two-wheeler loan interest rate

For many people, purchasing a two-wheeler is a dream come true. After passing through many phases of life, you will reach the place where you can fulfill the dream of owning a two-wheeler. But at the same time, when you'are going to get a bike on loan, several considerations come into play.

Let us discuss some of the factors that may affect your two-wheeler loan interest. 

  • Credit score/CIBIL score

A lender's primary factor for determining the amount of interest in which you may get a two-wheeler loan is generally based on your credit history. Before your loan is approved, your lender will look at your CIBIL score, previous loans, and repayment plan.

You will be able to negotiate a reduced interest rate on your two-wheeler loan if you have a good CIBIL score, which indicates your creditworthiness.

  • Salary/Income source

Lenders approve loans under several factors. If you are a salaried employee, it is easy to get your loan approved, and it will determine the amount you repay as EMIs. Your salary is also a consideration to get the low-interest rates. Lenders may be concerned about you paying your EMIs if your debt-to-income ratio is too high, and they may seek to mitigate their risks by providing you with higher interest rates. 

  • Down payment

The amount you can afford to pay, excluding the loan amount on the day of purchase, is known as a down payment. As a result, if your payment covers up to 50 to 70% of the cost of your chosen vehicle, the loan amount you need from your lender will be smaller, and your lender will be more likely to offer you cheaper interest rates. If you want 100% financing for your two-wheeler, the lender is more likely to negotiate a higher loan interest rate. 

  • Residence

Your place of residence determines your debt to income ratio. Therefore, it plays a significant role in establishing interest rates on your two-wheeler loan. If you live in a metropolitan city, like Delhi or Hyderabad, your living expenditures are likely to be greater than a Tier Two city; as a result, your earnings must be significantly higher to be able to repay your two-wheeler loan. 

  • Two-wheeler model

The type and model of the car you want to buy will also have a big impact on the interest rates you'll be offered on the financing you get from your lender. In many situations, the car serves as collateral during the loan term, and if you default on the loan, the lender will try to recoup their losses by selling it. As a result, popular two-wheeler models generally have lower loan rates since their resale value is considerably higher. 

  • Your age

Your age has a significant impact on the interest rate you pay. If you are a person who will retire very soon, for example, your loan may cost you extra. It is because as you get closer to retirement age, your ability to repay a debt decreases. These are the factors that determine your two-wheeler loan interest rate. 

How to lower the interest rate on a two-wheeler loan

When applying for a loan, your goal should be to receive the best rate feasible. Here are a few suggestions to assist you to achieve a cheaper interest rate:

  1. Maintaining a good credit/CIBIL score: Because your credit score is so important in deciding the interest rate you're offered, you should start by cleaning up your credit history. If you don't have decent credit, work on improving it before applying.
  2. Check your debt-to-income ratio to see how you may improve your current financial situation. This portrays how much of your current income goes toward loan and credit card repayment. Reduce your debt-to-income ratio by paying off current loans. The smaller the ratio, the more likely you are to receive favorable rates.
  3. Negotiation: Negotiating with your lender can sometimes result in lower rates. This is especially useful if you don't meet all of the eligibility requirements. If you do not have enough money but expecting a raise, showing documentation of this might help you acquire better credit rates.

Which is better: a variable interest rate or a stable interest rate?

When applying for a bike loan, your lender may give you the choice of choosing between a variable and a fixed interest rate. Then, based on your requirement, you should pick one of the options. The risk level associated with each rate determines whether to use a fixed rate or a variable rate.

Variable interest rates are often higher than fixed interest rates. Fixed rates, on the other hand, stay consistent even when market rates fluctuate. For example, if you choose a fixed rate of 11% p.a., it will remain constant regardless of what happens.

Variable interest rates will be fluctuating with the market condition. When the RBI changes the repo rate, the rates related to MCLR (Marginal Cost of Funds based Lending Rate) fluctuate as well.

As a result, the interest rate may rise or fall over time. Variable interest rates, on the other hand, are often lower than fixed interest rates. As a result, most borrowers choose variable rates.

Loan eligibility criteria

Check your two-wheeler loan eligibility criteria here. The following are the two-wheeler loan qualifying conditions for salaried and self-employed persons.

  •  Age

The person who is applying for the loan must be between 21 and 60 years. Also, if a person is applying for the loan when his retirement is near, he may be charged with higher interest rates. 

  • Residence 

The individual applying for a loan must have lived in the area for at least one year. However, in the case of a superbike loan, the home must be self-owned. It makes no difference whether the home is rented or owned when it comes to regular motorcycles. 

  • Current employment status 

The lender will look into your employment history; if you want a regular motorbike, you must have worked for at least one year at the firm you specified, and if you want a superbike, you must have worked for at least two years. 

  • Income

If you want to take out a superbike loan, your annual income should be at least 15 lakhs for salaried people and at least 5 lakhs per month for a self-employed individual. While buying a normal motorcycle, income doesn’t come into consideration.

Now that you have understood more about the two-wheeler loan, its eligibility criteria, and the factors that affect the loan interest rate, you are all set to start that ride.