Buying a two-wheeler is an exciting experience. With so many models and brands to choose from, it can be tempting to swipe your credit card and purchase immediately. However, taking on credit card debt to buy a two-wheeler requires careful consideration. This blog will explore the pros and cons of using a credit card to finance a two-wheeler purchase.
The Benefits of Buying a Two-Wheeler on a Credit Card
Purchasing a two-wheeler on a credit card offers some potential benefits:
Interest-free Period
Most credit cards offer an interest-free period of typically 20-50 days on purchases (*check your card’s T&C). If you can pay off the full amount within this period, you effectively get an interest-free loan. This can help ease the burden of the high upfront cost of a two-wheeler.
Immediate access
Credit card approvals may occur in minutes, providing instant purchasing power without lengthy applications or income verification. While some loans may be processed within 24 hours, credit cards allow you to bypass the entire approval process if you already have available credit. This means that you can complete the purchase on the spot when you find the perfect two-wheeler.
Facility of Bike EMI on Credit Card
You can convert your credit card purchase into Equated Monthly Instalments (EMIs). This splits the cost over several months and makes it more affordable. The tenure can range from 3 months to 2 years or more depending on your card provider, credit limit and eligibility.
Rewards and Cash Back
When you purchase a two-wheeler with a credit card, you may earn valuable reward points or cash back on a significant transaction. This benefit can translate into future savings or perks, making your purchase even more rewarding. Unlike loans, which typically don’t offer any rewards, using a credit card allows you to maximise your spending while enjoying additional financial benefits. You can also check whether there are any credit card offers on two-wheelers, especially during festive seasons.
Full Financing Confidence
Using a credit card to buy a two-wheeler ensures you can access the exact amount you need within your credit limit. This contrasts with loans, where a low CIBIL™ score may lead to reduced financing, limiting your options. With a credit card (depending on your available credit limit), you can confidently choose the model that best suits your needs.
Downsides of Buying a Two-Wheeler on a Credit Card
Here are some of the significant drawbacks of purchasing a two-wheeler on a credit card:
High Interest Rates
While the flexibility to buy a bike on credit card EMI can be appealing, the interest rates on these transactions are often higher than those on traditional two-wheeler loans. These costs can increase, especially for longer tenures, leading to higher overall payments.
Credit Damage from High Balances
When you use your credit card for a large purchase like a two-wheeler, you risk exhausting a significant portion of your credit limit. For example, if your credit card limit is ₹2,50,000 and you spend ₹1,00,000 on a two-wheeler, you will have used 40% of your credit limit.
Exceeding a certain percentage of your total credit limit may negatively affect your credit score, as credit bureaus may interpret this as a high dependency on credit. This could potentially make it more difficult to secure future loans or credit approvals at favourable terms.
Processing Fees
Most credit card providers charge a processing fee when converting purchases to EMIs. This fee is deducted upfront and added to the principal amount, increasing your net interest.
Late Payment Penalties
If you ever miss an EMI, credit cards charge a very high penal rate of interest on the outstanding amount. In addition to high interest rates, these penalties can cause your outstanding amount to increase quickly, leading to a debt trap.
Hidden Charges
Credit cards often have high hidden fees, such as annual maintenance fees, processing charges, and even penalties for exceeding your credit limit. It’s essential to carefully read the fine print before using your credit card for such a large purchase.
Risk of Overspending
Since credit cards offer easy access to credit, there’s always a risk of overspending, which could lead to unmanageable debt. It’s important to be disciplined and use your credit limit wisely, especially after big-ticket purchases like a two-wheeler.
Conclusion
While financing your two-wheeler on a credit card may seem convenient, weighing the pros and cons is important. Credit cards can offer quick EMI payments, and improve your credit score. Still, they come with higher interest rates, shorter repayment periods, and the risk of negatively impacting your credit utilisation ratio.
If you do choose to buy a two-wheeler on a credit card, use the card judiciously and ensure timely repayment. This will help you enjoy the benefits while mitigating the risks. Ride safe!
