Determining Factors That Affect Bike Loan Interest Rates
Are you planning to buy a two-wheeler? The first stage is to decide which bike model to purchase according to your preferences, requirements, and budget. Don’t feel discouraged by the outrageous price tag of your desired bike.
A two-wheeler loan is the most convenient funding option to own a bike without exhausting your savings or stretching your finances. Easy accessibility of bike loans has made it easier to purchase your dream bike.
Moreover, they come with flexible repayment terms, allowing you to repay the bike’s price gradually in EMIs. However, you should remember that your total loan cost largely depends on your bike loan interest rate.
Several crucial factors affect the interest rate on your bike loan. So, understanding them will not only let you improve your profile but also help you get the best rate. Here, we will discuss some of these factors.
Your credit score is the primary factor that lenders use to determine your bike loan interest rate. Before approving your loan application, lending institutions look at your previous credit, repayment habits and other components that make up your credit score. A good credit score increases your creditworthiness and gives you more negotiating power to reduce your interest rate.
Lending institutions approve bike loans based on several factors. Salaried employees often find it easier to get loan approval and repay it conveniently in easy EMIs they calculate using a loan calculator for bike. Lending institutions usually prefer salaried loan applications due to their income regularity and job stability, especially if they have been working in the same job for at least six months, with a minimum experience of one year. Self-employed professionals are also eligible for bike loans but must provide documents like bank statements and ITRs to prove their income status.
Your monthly income is another vital parameter lenders use to determine your bike loan interest rate. They compare your net income against the bike loan EMIs to measure the risk of approving your loan. Usually, financial institutions offer competitive interest rates to salaried individuals because their income is regular and steady. The higher the income, the more conveniently you can pay your EMIs on time. That means a lower risk for the lender, convincing them to offer you a lower interest rate plan.
If you are a salaried employee, your employer’s reputation helps your lender gauge your job stability and income regularity. That is why government employees are the most preferred candidates for lending institutions. Those working in MNCs also attract the best interest rates due to increased credibility.
Many reputable loan providers finance up to 95% of the bike’s cost. You must pay the remaining amount from your pocket as a down payment. That means if you qualify for a 95% Loan to Value (LTV) ratio, the lender will finance 95% of the bike’s cost as a loan, and you will have to pay the remaining 5% as a down payment. However, covering 95% of the bike’s price with a loan means a bigger loan amount, more interest cost, and higher risk for the lender, causing them to charge a higher bike loan interest rate. Instead, borrowing only 50-60% of the bike’s cost and making a bigger down payment from your pocket will reduce your financial obligation and attract a lower interest rate.
Your age can significantly impact your interest rate. For instance, if you are retiring soon, the lender may charge you extra. That is because your income and repayment capacity decreases as you approach retirement age. Your repayment capacity is also low if you have just started your career and don’t have sufficient financial stability.
The model and brand of bike you want to purchase also impact your bike loan interest rate. In most cases, the vehicle itself serves as collateral to the lender until you fully repay the loan. If you default, the lender recoups their loss by seizing and selling it. Since popular models have higher resale value, they may attract lower interest rates than others.
A longer tenure increases your interest rate because you will take longer to repay the loan, blocking the lender’s money and increasing the risk of default. Loan default is a significant risk regarding a loan. If the loan provider deems the loan as risky, they feel justified in charging you a higher interest rate. Therefore, consider opting for a shorter tenure to minimise your interest rate. However, be careful when opting for a short tenure, as it will increase your EMI amount and make repayment challenging. A bike loan calculator will help you determine the right term with EMIs you can easily afford each month.
If your current financial obligations exceed 40% of your monthly income, loan providers may reject your loan application or charge you a higher interest rate than usual. A high debt-to-income (DTI) ratio can increase your risk of missed EMIs and loan defaults, so lenders may charge you a higher interest rate due to the bigger risk involved. The lower the DTI ratio, the lower the interest rate you may grab. Use a loan calculator for bike online to calculate your monthly EMIs and determine if you can afford that outgo each month. If not, opt for a longer tenure to reduce the EMI amount and repay them conveniently without stretching your budget.
Understanding the factors that affect your bike loan interest rate is essential before proceeding with the application process. It makes repayment easier without causing unnecessary strain on your regular finances. Remember your current obligations, recurring expenses, and bike maintenance costs, and keep aside some emergency funds before opting for a loan plan. Improving your credit score, decreasing your DTI ratio, and negotiating with lenders are the key tips to get the lowest interest rate on bike loans.