A two-wheeler loan is a convenient source of finance when you are looking to buy a bike or a scooter. The loan allows instant funds and helps you buy the bike without making a dent in your savings. The two-wheeler loan is a secured loan issued by many financial institutions. It, however, comes with an interest rate which is payable on the outstanding balance of the loan. The interest rate varies across different financial institutions. You can compare and choose a financial institution whose rates are the most competitive to make the loan more affordable.
Moreover, there are ways in which you can reduce the interest rate on the two-wheeler loan. But before discussing these ways, let’s have a look at some of the important features of the two-wheeler loan.
Key Highlights
- Two-wheeler loans offer convenient funds to finance the purchase of a two-wheeler. However, they involve interest rates payable on the loan amount.
- The interest rate varies across different financial institutions and is an added expense on the loan amount.
- There are ways in which you can reduce the two-wheeler interest rates for affordable repayments.
- Some such ways include having a high credit score, looking for offers and tie-ups, choosing a higher down payment, choosing the right lender, etc.
Features of a Two-Wheeler Loan
- Any individual, whether salaried or self-employed can apply for a bike loan. The borrower should have a stable source of income to qualify for the loan.
- The two-wheeler financed by the loan is hypothecated to the bank till the loan is repaid. After repayment, the hypothecation is removed and the vehicle becomes yours.
- The repayment tenure is flexible to allow easy repayments. For example, Shriram Finance offers bike loans for a period ranging from 12 months to 36 months.
- These loans do not offer any kind of tax benefit to the borrower.
- A specific portion of the bike’s cost can be financed by the loan. This is called the Loan to Value ratio and it varies across institutions. 100% of the bike’s value. For instance, Shriram Finance provides maximum financing options that can cover the full on-road price of the bike.
Tips to Reduce Two-Wheeler Loan Interest Rates
Two-wheeler loan interest rates depend on different factors. You can use these factors and reduce the rates for affordable repayments. Here’s a look at these factors -
Credit Score
The credit score determines your repayment capacity. It ranges from 300 to 900 and a high score is favourable for getting favourable loan terms. For instance, a good credit score plays a very important role in getting loans at lower interest rates. The higher the credit score of the applicant, the lower the interest rate applied and vice-versa. Usually, a credit score of 700 and above is considered to be good and can get you loans at attractive rates. For a credit score less than 650, it might be difficult to get loans. Even, if your loan is sanctioned you might have to pay high interest rates. Hence, it is of utmost importance to maintain a good credit score at all times.
Ongoing Seasonal Offers
Lenders launch seasonal offers during festivals and special occasions. During these offers, lenders might reduce the interest rates or offer discounts on the same. If you avail of a two-wheeler loan during such offer periods, you can get lower rates and save on the loan repayment.
Pre-approved Loan Offer
Before applying for a bike loan, you should always check for any kind of ongoing pre-approved loan offer. This is a facility extended by financial institutions to loan-seeking individuals. Under this, the institutions grant pre-approved loans to individuals at discounted rates. The applicant need not go through a long application process and is offered the loan at comparatively low prices.
Comparison
As mentioned earlier, the interest rate on a bike loan varies between different financial institutions. Hence, comparison becomes important and thanks to the online mode, it is also easy. You can go online and compare the interest rates across lenders offering the two-wheeler loan. Then, you can choose a lender offering the most competitive interest rate and reduce the interest costs.
Tie-ups
Various motorbike companies have tie-ups with lending institutions. The interest rates provided by these linked-up institutions are usually lower than the prevailing market rates. If you are planning to buy a motorbike from a company that has a pre-existing tie-up with a lending institution and raises loans from the same institution you might get bike loans at a comparatively low interest rate.
Existing customer
Another factor that might reduce the interest rate on your bike loan is your existing relationship with the lender. If you are an existing customer of the lender, you might get discounted or preferential interest rates on the two-wheeler loan. In an effort to cross-sell their products to existing customers, lenders offer incentivised rates that bring down your interest rate.
Preferential Pricing
Many companies have preferential interest rates for female applicants to motivate them to buy a vehicle and apply for a loan. So, females can enjoy lower interest rates if the lender offers this preferential pricing policy.
Down payment
The down payment is the lump sum payment that you make to buy the bike. It is a fraction of the actual cost of the bike. The remaining amount of the purchase price is then financed by the two-wheeler loan. The interest rate on the loan depends on the down payment too, although indirectly.
If you pay a higher down payment, the loan amount is reduced. This reduces the interest charged. The opposite is true for lower down payments.
So, with down payments, the interest rates might remain the same but your overall interest outgo reduces since the loan amount is limited.
Prepayment or Foreclosure
Some lenders might allow you to prepay a part of the loan to reduce the debt burden. There might also be the facility to foreclose the loan before the repayment tenure by clearing off the dues. When you prepay or foreclose the loan, you reduce the debt burden. As the debt burden is reduced the interest expense also reduces. Thus, prepayment and foreclosure also help in reducing the interest outgo.
Did You Know?
The online two-wheeler loan EMI calculator helps you calculate the exact EMI of the loan before you actually apply for it. You just have to enter the loan amount, repayment tenure, and the applicable interest rate. Based on these parameters, the calculator works out the EMIs. It also shows you the total interest payable during the loan tenure. This can give you an idea of the interest that you would incur so that you can reduce it.
The Bottom Line
Interest rates on two-wheeler loans are unavoidable. Since the lender is offering you funds to buy the bike, it will charge an added amount for the facility. So, you will have to pay the interest cost when you avail of the loan. But, there are tips to reduce the interest cost and the aforementioned points help you do just that. So, use one or more of these points and bring down the interest liability on the two-wheeler loan for affordable repayments.
When it comes to choosing the right lender, Shriram Finance is the ideal choice. With facilities such as 100% on-road price financing, quick disbursal of loans (within 24 hours of loan application), minimal documentation, and flexible repayment tenure, Shriram Finance has emerged as one of the best institutions to offer bike loans at low interest rates.
