What Are The Factors That Determine My Two Wheeler Loan Interest Rate?
Two-wheelers have been gaining tremendous popularity among riders in India, due to which the demand for two-wheelers has surged significantly. Much of its popularity can be attributed to the fact that it is affordable and is the best option to navigate daily traffic. Besides that, it enables you to follow social distancing norms during the COVID-19 era besides saving time and money.
If you are short of cash, you can apply for one of the best bike loans available in the market without compromising your finances. You can buy your dream bike and get one step closer to freedom from the public conveyance. Some lenders offer up to 100% of the vehicle on-road price as a loan with interest rates as low as 0.99%.
However, the bike loan interest rate varies across lenders. The interest rate that you can get depends on factors like income, credit score, loan amount, loan tenure, etc. Before applying for the best bike loan, it would be wise to know the following factors determining your bike loan interest rate.
1. Credit score
Before approving your loan application, lenders consider your credit score to determine your creditworthiness. Your credit score is a 3-digit number assigned to you by the Credit Bureau India after taking various factors into account.
The factors considered to calculate a credit score are:
- Credit history
- Length of credit history
- Credit mix
- New credit
- Credit utilization
Your credit score helps the lender understand whether or not you will repay the loan amount on time. Having a minimum CIBIL score of 750 or more can guarantee both approval and lower your bike loan interest rate. Before applying for the best bike loan, make sure you have maintained a healthy credit score.
2. Loan amount
Another factor that determines the bike loan interest rate is the total loan amount you have applied for. A majority of financial institutions offer more than 80% of the vehicle’s on-road price as a loan. It means that the higher the value of your two-wheeler, the higher will be the loan amount. A higher loan amount will always increase the rate of interest.
When you apply for a higher loan amount, the lender considers it a risky deal compared to a lower loan amount. In such cases, the lender offers a higher interest rate to recover their losses. It would be wise to use the best bike loan EMI calculator to determine your monthly payments.
3. Loan repayment tenure
It is commonly known that the longer the repayment tenure of a loan, the higher the interest rate. When you opt for a longer repayment tenure, lenders consider this risky as the chances of defaulting on your loan payments are higher. It increases the risk associated with your best bike loan.
Therefore, to cover their losses and justify the risk involved, lenders offer a higher interest rate due to the longer loan tenure. If you wish to take a bike loan with a lower interest rate, it would be advisable to choose a shorter loan term.
4. Down payment
Lenders offer a certain percentage of the vehicle’s on-road price as a loan. It means that you will have to pay the remaining as a down payment. For instance, if your lender is covering up to 60% of your vehicle’s value, you will need to pay the remaining from your pocket.
The amount you pay as a down payment has a direct impact on your bike loan interest rate. Paying more in down payment will likely decrease the interest rate payable as it decreases the loan amount. Also, If you apply for up to 100% of the bike’s value as a loan, your bike loan interest rate will increase.
5. Types of bike loans
There are generally two types of bike loans – secured bike loans and unsecured bike loans. A secured bike loan is one where borrowers are required to pledge their assets as collateral. Whereas, an unsecured loan is collateral-free. Depending on the lender and the type of loan you choose, the bike loan interest rate will vary.
Compared to secured loans, unsecured bike loans come with a higher interest rate. The reason can be attributed to the risks involved in unsecured bike loans.
If you are applying for the two wheeler vehicle loan, it would be prudent to maintain a good credit score, apply for a lower loan amount, and make sure to pay more in down payments to get a lower interest rate.