A bike loan is the best way to buy your dream bike without dipping into your savings or investments. The best part is that most lenders offer up to 100% of the bike’s on-road price as a loan. With affordable interest rates and flexible repayment tenure, making timely repayment is easy and convenient. However, a bike loan interest rate depends on factors, such as age, income, credit score, current financial obligations, etc.
So, before applying for bike finance to buy your favourite bike, it is crucial to assess your needs and choose a loan you can afford to repay within the stipulated EMI.
Top 5 factors affecting a bike loan interest rates
The interest rate is the most crucial part of a bike loan application. It has a direct impact on the vEMI amount. Here are the top factors that determine the bike loan interest rate:
- Loan amount
As mentioned earlier, you can secure up to 100% of the vehicle’s market value as a loan. However, that does not mean you should go for it just because you have the option. Before applying for a loan, it is imperative to assess your need and choose a loan amount you can afford to repay. When you apply for a higher loan amount, the lender will charge a higher interest rate to justify the risks involved while making repayments.
So, while applying for a loan, it is advisable to make the best use of a bike loan EMI calculator to determine how much you can afford to borrow. If you have the budget, it is always better to pay a large portion of the loan amount from your pocket.
- Credit score
The CIBIL score is one of the crucial factors involved in a bike loan application. It is a three-digit number that helps lenders to decide whether or not you are eligible for a lower bike loan interest rate. It shows the creditworthiness of a borrower. When you apply for bike finance, the lender checks your credit score to determine whether or not you are a creditworthy borrower. Generally, lenders require a minimum CIBIL score of 750 to approve bike loan.
However, if you get a lower interest rate on your bike loan application, you will need to maintain a healthier credit score. The closer you are to the 900 range, the better are your chances of getting a lower interest rate.
It is the first thing a lender checks before approving a loan application. It indicates the borrower’s repayment capacity. It is worth noting that a higher and recurring salary increases your chances of getting a lower bike loan interest rate. Therefore, if you want to secure the lowest interest rate on your bike loan application, you will need to disclose all sources of income to the lender.
- Loan tenure
The repayment tenure is one of the main factors affecting the bike loan interest rate. Lenders offer a loan tenure that ranges between 12 to 48 months. However, you must opt for a loan tenure within which you can afford to repay the loan. Choosing a higher loan tenure fetches higher interest rates due to the risks involved. So, if you have a surplus amount in your account, it is better to choose a shorter loan tenure. This way, your EMI amount may increase, but you will save significantly on the interest.
- Down payment
Not all lenders offer the entire value of the bike as a loan, and you may not also be eligible to get a higher loan amount. It means that you may be able to get a certain percentage of the bike’s value as a loan. For instance, you may be offered up to 80% of the bike’s market value as a loan. It means that you will have to pay the remaining 20% from your pocket as a down payment.
But, the plus side is that a higher down payment decreases the principal loan amount, and a lower loan amount fetches a lower bike loan interest rate. So, while applying for bike finance, make sure to pay a large amount towards your loan as a down payment.
Getting a bike loan is the best way to buy your dream bike without constraining your monthly budget.
Published by Doreen Burger