Many dream of owning a bike, but getting the funds to buy that bike may depend on the loan features. The Loan-to-Value (LTV) ratio is a critical metric when applying for a bike loan - it determines how affordable and flexible your loan will be. Let's find out what LTV for a bike loan is and how it affects your journey to acquiring a bike loan.
What is LTV for a Bike Loan?
A loan-to-value ratio is the amount a lending institution is ready to finance on your motorcycle. Simply put, the percentage of the bike's price will be sent to the customer, and the remaining has to be borne as a down payment by the borrower. For example, if the LTV is 80% for a bicycle loan, you pay for only 20%, as the lending institution finances 80% of the cost of your bicycle.
LTV is crucial in determining the loan amount and all other related terms, including interest rates and repayment tenure.
How is LTV Calculated for a Bike Loan?
Calculating the LTV ratio is very simple. Various bike loan value calculators available can help you calculate this ratio precisely. However, it can be calculated like this:
LTV Ratio = (Loan Amount / Vehicle's Market Value) × 100
Suppose you are considering a purchase of a bike that costs ₹1,00,000, and the lending institution offers a loan amount of ₹80,000. Hence, the LTV ratio for a bike loan would be;
₹80,000 / ₹1,00,000 × 100 = 80%
The 80% LTV means you need to finance 20% of the bike's cost, leaving the rest to the lending institution.
What is a Good LTV for a Bike Loan?
The LTV for a bike loan varies because of individual financial situations and lending institution preferences. However, generally, LTV is favourable at 70% to 90%. A high LTV bike loan ratio offers you reduced upfront costs, but it will come with a higher interest amount outgo. On the other hand, a lower LTV ratio mandates a bigger down payment, but it often brings better loan conditions, like lower interest amount outgo and EMIs.
Factors Affecting Bike Loan LTV
Several factors determine an LTV ratio for a bike loan:
1. Market Value of the Bike
The current market value of the bike is important. New bikes have higher LTV ratios. Lending institutions will probably give lower LTVs for used bikes because they have lost value.
2. Credit Score of the Borrower
A good credit score speaks of good financial reliability and creates an incentive for a lending institution to give a higher LTV ratio. A bad credit score might limit the loan that you can raise.
3. Loan Tenure
Lower tenures may attract lower LTVs. Generally, longer tenures support higher LTVs but at the price of paying higher interest rates.
4. The Policies of the Loan Provider
Another factor is the approach adopted by a lending institution; this will vary based on risk appetite and market conditions.
5. Type and Brand of Bike
LTV may be more for premium and popular brands due to better resale value, whereas for niche or non-desirable brands, LTV may hit low due to low resale value.
How to Improve Your LTV to Get a Better Bike Loan
If your LTV ratio is currently low, don't worry. These are some of the strategies for improving it.
1. Save More for a Down Payment
This can reduce the LTV ratio, thereby lowering the lending institution's risk, and can get you a better deal on interest rates.
2. Credit Score Boost
The perfect credit score shows you are disciplined in managing your finances. And with a good credit score, loan providers may be willing to give you a little more and push the LTV ratio up with a more favourable deal.
3. Negotiate with Lending institutions
LTV bike finance differs by loan providers based on their risk assessment models. Shop around and negotiate with providers to find the best deal.
Conclusion
The LTV ratio is an integral part of any bike loan. If it is your first bike purchase or you have decided to upgrade to a new bike, understanding how LTV influences your loan terms will empower you to make better decisions. Using a bike loan to value calculator will help you understand how to get the best loan offers and improve your financial status. That will surely get you more desirable terms for a loan.
