Two-wheelers are among the most popular means of transport in many parts of India. Getting a bike is easy nowadays too, thanks to many easy finance schemes available. Most financial institutions offer 90% to 100% financing for select bikes, due to which, you can easily afford a bike on loan. But getting finance involves bearing interest cost and the interest rates vary from individual to individual and lender to lender. So, what determines the interest rates and how can you ensure that you get the lowest rate for your bike loan? Let’s look at the factors that affect the interest rate of a bike loan
To qualify for a bike loan, financial institutions look at the net income you earn, to gauge whether you have the capacity to pay back the loan or not. Since the income criteria for getting a bike loan is quite low, there are usually high chances for low-income earners too to get a bike loan. However, higher the income level, lower is the interest rate charged, as higher income means lower risk of default.
- Employer reputation (to gauge income stability)
Your lender may look at your employer records to understand the stability of your job. A good employer like an MNC or a job with a reputed business is seen as a sign of steady income. Self-employed individuals need to show their income stability through past earnings.
Financial institutions will look at other loans that you are currently paying off, like home loan, or any other personal loans, to get an idea about your disposable income. A higher disposable income means a better ability to repay the loan you are about to take, and so, the interest rate charged will be lower.
A high credit score will help in getting loans with lower interest rates. This is because your credit score
is a measure of your ability and willingness to repay the loan based on your past experiences with loan repayments. Never missing an EMI and timely repayments help ensure a high credit score, which in turn helps in lowering interest rates.
- Repayment history and prior defaults
One of the criteria for setting the ideal interest rate, from the lender’s point of view, is based on your willingness to pay. While the ability to pay is gauged from your net income, the willingness to pay is gauged from your past loan repayments and any defaults. So, it is very important to pay back loan EMI on time and intimate the financial institution
in case there is any genuine problem stopping you from paying an instalment.
Generally, the higher the down payment, the lower is the loan amount and lower is the cost of the loan, as the interest charged is lower.
- Relationship with financial institution
Your ability to negotiate with your lender as well as your past relationship with them in terms of loans taken and repayments made on time, will affect how much interest you get charged on your bike loan.
The duration of the loan in which the loan is paid off also has a bearing on the interest rate charged. Generally, long-term loans have a lower interest rate, but higher overall cost.
The interest rate also depends on the model
and type of the bike you intend to purchase. The interest rates for different categories like moped, motorbike and high-end bikes differ too.
Overall, interest rates charged on bike loans vary a lot, depending on the factors discussed above. While buying a bike, it is important to look at various options of getting loans from different financial institutions to best suit your requirements and grab the lowest interest rate possible.