When planning a loan for a two-wheeler, there are a number of factors you must consider. Among these are the bike loan interest rate, tenure, and loan amount, as they influence the cost you pay for availing of a loan.
While you can choose the amount and tenure, the interest rate depends on your eligibility and varies across lenders. The bike loan interest rate has a significant impact on your borrowing costs.
Read on to know about these factors and find out how to lower your bike loan interest rate.
Factors Affecting Your Bike Loan Interest Rates
A lower interest rate reduces your EMI and total repayment amount and vice versa. You can use a bike loan EMI calculator to estimate your EMI and find out the most affordable loan terms.
Remember, the interest rate depends on your credit profile, income, and other factors determining your repayment ability. As such, knowing the factors affecting the bike loan interest rate is crucial, so you can get a loan affordably.
Here are a few common factors that can impact your bike loan interest rate.
Creditworthiness of the Applicant
Your credit score is directly linked to the interest rate offered by the lender. With a good credit report, i.e., spotless credit repayment history and low existing credit, you enjoy the benefit of a lower interest rate.
Banks and NBFCs offer competitive interest rates to bike loan applicants with credit scores over 750. As your credit score goes higher, banks and NBFCs are assured of your creditworthiness and offer credit at lower interest rates.
In addition to your credit score, another factor determining your creditworthiness is the debt-to-income ratio (DTI). Lenders check your monthly income and determine the terms accordingly.
You can get an affordable interest rate for your bike loan if your debt-to-income ratio lies between 25% and 30%, but some lenders may have different criteria. Hence, it is ideal to keep a lower DTI ratio to increase your chances of loan approval.
Model of the Two-wheeler
Another key factor contributing to your interest rate is the type of two-wheeler you want to purchase. With the popular and latest model of bikes and two-wheelers available in the market, lenders can offer you lower interest rates on select models.
This is because the latest models may generate a higher resale value when compared to models that are not much in demand, in case you fail to repay your loan. Thus, when buying a two-wheeler on credit, choose your model carefully.
When opting for a two-wheeler loan, or any other credit, lenders require you to submit documents as proof of your monthly income. This helps banks and financial institutions calculate your repayment capacity, and determine whether you can repay the loan amount without any defaults or delays.
Furthermore, these documents help lenders assess the loan amount that can be sanctioned, based on your monthly income. Most lenders require you to have a minimum ₹10,000 as monthly income when availing of a bike loan. A few others may also insist on a minimum monthly income of ₹15,000.
Remember that with a higher income, you can negotiate for a better loan amount at affordable bike loan interest rates. This is why you should use a bike loan EMI calculator to compute your monthly instalments well in advance.
Simply enter the loan amount you choose to avail, the applicable interest rate, and the duration of the loan to calculate your EMIs. This helps you assess if your monthly income is sufficient to meet your overall borrowing costs.
Interest rates and other loan terms differ for salaried and self-employed individuals. Since salaried employees have a stable income source, lenders consider them reliable applicants with a steady repayment capacity.
Furthermore, if you are employed with a reputed company in the government or private sector, you can easily get a loan for your two-wheeler. On the contrary, when taking credit for two-wheelers as a self-employed individual, you may have to pay a higher rate of interest.
The minimum age criterion for a bike loan is 21 years. The maximum age of the loan applicant at the end of the loan tenure needs to be 60 to 65 years, depending on the lender. However, if you are a young borrower, you can get the benefit of a better interest rate.
Since applicants closer to the retirement age may have difficulty in repaying the loan amount, lenders prefer younger applicants. In addition, younger applicants may have more time to repay the loan, i.e., longer tenure.
Older applicants, on the other hand, have a shorter tenure to repay their loan and may have to pay a higher interest amount. Those below the age of 21 years can apply for a bike loan with a guarantor, preferably a parent or guardian, who may be able to repay the loan in case of any defaults.
Tips to Lower Bike Loan Interest Rate
Now that you are aware of a few factors that can have an impact on your loan interest rate, here are some tips to help lower it.
Maintain a Good Credit Score
With an excellent credit score and a spotless credit history, you can negotiate for a two-wheeler loan at a lower interest rate. After all, lenders consider you to be a responsible borrower when you maintain a healthy credit score.
Clear Your Existing Debts
Multiple existing debts can lower your creditworthiness. So, clear your current loans to avail of a better offer. This is because lenders may consider you hungry for credit and may doubt your ability to handle repayments.
Choose an Existing Lender
If you have already availed of any loan, applying with the same bank or financial institution is preferable. Not only will your loan processing time decrease, but you also stand a better chance of reaping the benefit of other perks.
As your lender is aware of your repayment ability, you can also negotiate for better loan terms.
Opt for a Longer Tenure
The loan tenure and interest rate have an inverse relationship. This means opting for a longer tenure can decrease your interest rates considerably. However, remember that in doing so, your interest outgo and your overall borrowing costs can increase.
Compare Many Options Available in the Market
You need to explore your options before zeroing in on a lender rather than merely settling for the first loan offer. Comparing various options can help you choose the lender offering favourable loan terms that suit your requirements.
Use a bike loan EMI calculator to help you compare different loan options available in the market.
Negotiate the Loan Terms Properly
Remember that lenders are always open to negotiating loan terms. You can assess your capacity using a bike loan EMI calculator to plan your negotiation better.
With these tips, you can boost your chances of a lower bike loan interest rate and get your two-wheeler without any compromises. Make sure you carefully read the terms and conditions of the loan agreement, before accepting the offer. This will help you avoid hidden costs and keep your repayment stress free.