A bike loan is one of the simplest and effective ways to finance your bike purchase. A bike loan will let you purchase your dream bike, without any hassles. However, choosing the right bike loan provider can be challenging. In this article, we’ll go over some important points to keep in mind while choosing a bike loan to help you make a more well-informed decision.
Loan amount
Bike loans are one of the most accessible types of loans available in India. The eligibility criteria for these loans are quite simple as well. However, the loan amount that you are eligible for can vary from one loan provider to another, depending on their policies.
Another point to consider here is the loan-to-value ratio (LTV ratio). An LTV ratio is the ratio of the loan to the value of the asset purchased. Depending on your credit history, income level, relationship with the lender, etc. your LTV ratio can vary.
If your LTV ratio is low, you might have to make a bigger down payment. If you cannot afford to make a large down payment, you can consider going for a different loan provider that offers a higher LTV ratio.
Under the associated charges
There are a number of charges associated with loans. Though these charges may seem minuscule in the beginning, they can quickly pile up. It’s important to be aware of these charges to stay on top of your finances. Here are some of these charges:
- Loan processing charges – nil to 5% of total loan amount
- Stamp duty and other statutory charges – applicable as per law
- Documentation charges – up to 2% of the total loan amount
- PDD collection charges – up to Rs 500
- RTO charges – at actuals
- Prepayment charges – nil to 5% of part payment amount
- Foreclosure charges – nil to 10%, depending on when the loan is being foreclosed
This list is not exhaustive and is meant to be used for reference only. Get in touch with your lending partner to understand the fees and charges associated with your bike loan. Always choose a partner whose fees and charges are minimal.
Interest rates
The interest rate charged on your loan has a huge impact on your EMIs and subsequently, your finances. So, it’s important that you shop around and find a loan provider that offers affordable interest rates.
Interest rates are generally calculated on a case-to-case basis. Lenders will take the borrower’s credit score, credit history, income level and other factors into consideration while fixing an interest rate.
If you have a good credit history and a high disposable income, then your interest rate will be on the lower end and vice versa. If you have a good working relationship with your lending partner, you can also consider negotiating better rates.
Here’s how interest rates impact your EMIs:
Let’s suppose that Lender A offers you a bike loan of Rs 1,00,000 at 9% interest for a tenure of 24 months. Here, your EMI would be Rs 4,568 while the total interest payable would be Rs 9,643 and the total amount payable would be Rs 1,09,643.
On the other hand, Lender B offers you a bike loan of Rs 1,00,000 at 12% interest for a tenure of 24 months. Here, your EMI would be Rs 4,707 while the total interest payable would be Rs 12,976 and the total amount Rs 1,12,976.
Here you can see that an increase of just 3% in interest can increase your EMI by Rs 139 and your total interest payable by Rs 3,333. This is why it’s important that you choose a lending partner that offers an affordable rate of interest so you can save on interest payments.
Repayment plan
Generally, bike loans are offered repayment tenures ranging anywhere from 12 months to 60 months. An ideal repayment tenure is one that accommodates your financial needs and goals while keeping costs low.
So, it’s important to choose a bike loan provider that allows you to choose your preferred repayment tenure.
Here’s how repayment tenures impact your EMIs:
Let’s suppose that Lender X offers you a bike loan of Rs 1,00,000 at 9% interest for a tenure of 24 months. Here, your EMI would be Rs 4,568 while the total interest payable would be Rs 9,643 and the total amount payable would be Rs 1,09,643.
On the other hand, Lender Y offers you a bike loan of Rs 1,00,000 at 9% interest for a tenure of 48 months. Here, your EMI would be Rs 2,489 while the total interest payable would be Rs 19,448 and the total amount Rs 1,19,448.
Here, you’ll see that there is a significant difference between the EMI and interest payments for the same amount. This is the kind of impact that loan tenures can have on your repayments.
If you want to keep your EMIs as low as possible, opt for a longer loan tenure. However, if your primary goal is to pay off your loans quickly and keep costs low, go for a shorter loan tenure.
Remember that overburdening yourself with high EMIs is not a wise decision as it can lead to a lot of financial and mental stress. Additionally, defaulting on payments is a stressful and expensive ordeal. So, make sure that your repayment plan reflects your financial position and goals.
