Two-wheelers are the most convenient and cost-effective means of transportation amid the rising fuel costs. That is why they are the most preferred vehicle options among Indian families due to their easy navigation through traffic, minimal parking space requirement, and affordability.
Taking a bike loan to purchase your dream bike funds up to 95% of the cost, making the purchase easier for you and improving your credit score. Obtaining a loan with a reasonable Two-Wheeler Loan interest rate is a good idea if you don’t want to compromise your liquidity when falling short of funds to buy a two-wheeler.
Here are a few tips to help you get the most affordable financing with a Two-Wheeler Loan.
1. Check Your Credit Rating
A credit score is a 3-digit number that potential lending institutions will check to evaluate your creditworthiness. Generally, the Two-Wheeler Loan interest rate is lower for applicants with a decent credit score above 700-750. Thus, check your credit rating online before applying for a bike loan. Many lending institutions offer free credit score-checking tools to display the score in seconds. Improve your credit score before getting a bike loan if your credit score is low. These include paying off your outstanding balances, diversifying your credit profile, retaining old accounts, limiting credit card usage, etc.
2. Review Your DTI Ratio
It is important to check the percentage of your current income required to fulfil existing financial liabilities. For instance, if you are already repaying a Home Loan, you must spend a substantial portion of your salary on its EMIs. That means you might be left with little disposable income to accommodate a new bike loan EMI.
If your debt-to-income ratio is above 40-50%, potential lending institutions will perceive you as a high-risk borrower and charge a higher Two-Wheeler Loan interest rate to cover the risk. Therefore, cleaning existing loans before applying for new credit is prudent. Doing that will reduce your DTI ratio and increase your chances of getting the best loan deal with the lowest interest rates.
3. Ensure Having a Good Income
Most lending institutions have a clause of minimum monthly income in their eligibility criteria. While the base income cap can be as low as ₹ 8,000 per month, a higher income reassures the lending institution about your financial convenience and repayment capacity. Thus, the higher your income, the lower the bike loan interest rate you can qualify for. Consider all your income sources in your loan application, or take a part-time job to supplement your income. If an increment is due, wait before applying for a Two-Wheeler Loan.
4. Borrow from Your Existing Loan Company
Many NBFCs offer preferential bike loan interest rates to their existing customers to promote loyalty. Thus, before comparing interest rates from various lending institutions in the market, approach your current credit company first to see what they offer. If you pay your EMIs consistently and have a good relationship with them, you can obtain the lowest Two-Wheeler Loan interest rate from your current lending institution.
5. Choose a Longer Repayment Term
Most bike loan plans allow you to choose a repayment term that best suits your budget. While opting for a shorter tenure will cut down the payable interest cost, it will drive up the EMI amount to be paid each month. Alternatively, a longer repayment tenure will allow you to repay the EMIs conveniently without stressing your budget. Easy EMIs will also convince the lending institutions of timely repayment, convincing them to charge a lower interest rate on your loan plan. A loan calculator for bikes will help you make an informed decision regarding your loan tenure.
6. Make a Bigger Down Payment
While many lending institutions now offer up to a 95% LTV ratio, borrowing all that is available will inevitably boost your credit burden. That is because the lending institution will determine your interest rate based on the principal amount you borrow. Borrowing a sizable amount will require you to shoulder bigger EMIs for longer terms. Avoid this by making a bigger down payment and borrowing only what is necessary. Doing that will reduce your principal sum requirement and Two-Wheeler Loan interest rate.
7. Use a Loan Calculator for Bike to Compare Financing Plans
Using a loan calculator for a bike is the easiest way to grab the lowest interest rates in the market. Before finalising a loan plan, use this online tool to compare interest rates from different lending institutions and determine your financial burden on the applicable interest rate and principal amount. You can also enter various combinations of repayment terms to opt for one offering the lowest Two-Wheeler Loan interest rate.
8. Choose an Appropriate Bike Model
Amid all the hustle of loan application, it’s easy to overlook the significance of choosing the right bike model. Loan companies examine this factor to determine its resale value. If you default on the loan, they must resell the bike to recover their outstanding balance. If you purchase a model with a lower resale value, the lending institution may charge a higher interest rate to cover the risk. Therefore, always choose a bike with a high resale value to provide your lending institution with a safety net in case of a default.
9. Evaluate Your Affordability
With a loan availability of up to 95%, you may get tempted to finance a bike beyond your budget. Although a bike loan increases your affordability and lets you choose a better bike, you should evaluate your finances and decide how much you can spend on a bike purchase. Even if the lending institution provides the required funds, you must eventually repay it with interest.
After bypassing all the hassles by following the tips mentioned here, you can grab a loan plan with the lowest Two-Wheeler Loan interest rate. Apart from competitive interest rates, you also enjoy the benefits of flexible repayment terms, a high LTV ratio, and tax benefits. Additionally, you can borrow a bike loan with minimal paperwork and get speedy disbursal without the hassle of queues and long waiting periods.