Things to Consider When Getting a Two-Wheeler Loan

Buying a two-wheeler can be an exciting yet daunting task, especially when arranging financing. While taking a two-wheeler loan may seem simple, you must evaluate some key factors before signing the paperwork. Considering aspects like the loan amount, interest rate, repayment tenure, eligibility criteria, and lender reputation will help ensure you make an informed borrowing decision.

This article outlines the top things to keep in mind when availing a two-wheeler loan.

An Overview of Two-Wheeler Loans

A two wheeler loan provides financing to purchase new or used motorcycles, scooters, mopeds, electric bikes, etc. The loan amount is typically up to 100% of the vehicle’s on-road price and can range from Rs 20,000 to Rs 2 lakhs based on the model.

Most lenders offer attractive interest rates starting from 10% p.a. with repayment tenures up to 5 years. Your eligibility, credit profile, required down payment, and chosen lender determine other loan specifics.

Factors to Consider When Getting a Two-Wheeler Loan

Buying your ideal two-wheeler is an exciting milestone. However, arranging financing to fund the purchase involves evaluating several parameters apart from just the interest rate offered. Before applying for a two-wheeler loan, you must assess the factors such as:

1. Loan Amount

Opt for a loan amount that aligns with your budget and repayment capability. Avoid overborrowing, as it will strain your finances through large EMIs. Calculate your disposable monthly income and obligatory expenses beforehand to decide on an optimal loan amount.

2. Interest Rate

Interest rates vary across lenders and applicant profiles. Compare interest rates offered by banks, NBFCs, fintech firms, etc., before zeroing in on the lender. Also, see if you can negotiate a lower interest rate by enhancing your creditworthiness.

3. Loan Tenure

Longer repayment tenures (up to 60 months) reduce EMI burden but increase interest outgo. Carefully evaluate your income stability and cash flows before fixing an ideal loan tenure – 36 to 48 months is standard. Avoid tenures beyond 5 years. You can also use an online two wheeler loan EMI calculator to compare scenarios and pick a loan tenure aligned to your finances.

4. Processing Fees

Most lenders charge 1-2% of the loan amount as processing fees to cover administrative costs. Some lenders may waive these partially or fully for existing customers with a good repayment track record or new customers with an excellent credit history. Ensure you keep processing costs low, as they will increase your repayment burden.

5. Down Payment

Two-wheeler loan lenders require anywhere between 10-25% of the vehicle’s price as a down payment from the borrower’s side to limit credit risk. The higher your down payment component, the better you are at improving loan eligibility and approval odds. Saving diligently over time for an adequate down payment also reflects your financially prudent behaviour toward the lender.

6. Eligibility Criteria

Key eligibility norms include a minimum age of 18-21, Indian citizenship, stable income source, credit score of 750+, and prior repayment track record. Meet the lender’s eligibility criteria to ensure quick processing and disbursal.

7. Repayment Flexibility

Opting for a two-wheeler loan from lenders who offer flexible repayment options can provide relief if you face temporary cash flow issues during the loan tenure. Provisions such as minimal charges for prepayments or loan foreclosure, the option of repayment holidays during emergencies, etc., allow you to realign repayment according to evolving financial circumstances.

8. Credit Score Impact

Ensuring timely repayment of the two-wheeler loan equated monthly installments enhances your credit profile significantly. Defaulting or delaying repayments can severely diminish your credit score, making future borrowings more difficult and expensive. Approach your two-wheeler purchase loan responsibly, assess repayment capability accurately and repay diligently.

9. Hidden Charges

Carefully evaluate the two-wheeler loan agreement provisions regarding any applicable hidden charges, such as cheque bounce penalties, late EMI submission fees, duplicate statement issue charges, etc. Factor such charges in your overall cost calculations to avoid unpleasant surprises. Understand applicable charge rates and ensure diligent compliance to avoid triggering these.

10. Lender’s Reputation

When seeking a two-wheeler loan, it is prudent to approach only reputable lenders with a track record of efficiency, transparency, and robust customer service. Opt for established banks, NBFCs, and fintech firms with widespread branch networks. This enhances convenience, processing ease, and peace of mind for the borrower during the loan tenure.

Conclusion

Selecting the right two-wheeler loan requires evaluating multiple aspects apart from the interest rate. Prioritising factors like loan amount, tenure, eligibility criteria, credit score impact, and lender reputation will help you make a well-informed, financially prudent borrowing decision. Research thoroughly and compute the costs, benefits, and risks of any loan offer before signing up. This approach will help you pick a loan that best aligns with your needs and repayment capability.