When you avail of a two wheeler loan, interest rate is one of the components that play a crucial role in determining the amount that you need to pay as EMI. You must also realize that the monthly instalment is directly proportional to the bike loan interest rate. This implies that a high interest rate would cause the EMI to shoot up, which is why you need to aware as to how to keep it within a certain limit.
There are several factors that impact the bike loan interest rates, and benchmarks like a good credit score, a clean financial record and a low debt to income ratio can actually help towards lowering the rate. The brand and model of the two wheeler that you wish to purchase can also make a difference, as would the level and source of your income. Sometimes even factors like brand loyalty and down payment of a certain amount can cause the interest rate of the two wheeler loan to swing in your favour.
Applying for a two wheeler loan emerges as one of the best ways to invest in a vehicle without causing a major dent in your savings. However, much depends on the bike loan interest rate, and to be successful in getting a lower rate of interest on your loan, you must bear in mind the following factors –
Credit history and score – Accorded by an accredited organization named CIBIL, a credit score sums up your overall financial health and is represented by a number. The higher the number, the better is your financial health in terms of funds borrowed, amount repaid, outstanding bills and so on. Lenders regard the credit score as one of the pivotal factors to decide the interest rate on two wheeler loan. Therefore, given the importance of this factor, you must pay close attention to financial behaviour and earn a high credit score.
Income and income source – How much you earn on a monthly basis as also the source of your earnings matter to the lender while reviewing your two wheeler loan application. Lenders regard this factor as being important because for them it is indicative of your ability to repay the loan amount and the bike loan interest within the stipulated duration. To this effect, salaried individuals who work in government offices are more likely to get lower interest rates as compared to self-employed professionals or private office workers.
Debt to income ratio – Regardless of how much you earn, lenders take more interest in ascertaining the part of your income which is used for paying past debts. Depending on the proportion of your income which is used for paying outstanding loans, lenders calculate the debt to income ratio. It represents the proportion of your debt in relation to your income, and ideally should always be on the lower side. A higher ratio implies increased debt, and may cause lenders to a charge a higher rate of interest.
Down payment – The amount that you are prepared to pay upfront while purchasing the two wheeler can impact the interest rate on the two wheeler loan. Since the relationship is inversely proportional, a higher down payment leads to slashing of interest rate and vice versa. What you can do is pay at least half the amount as down payment, and then apply for a two wheeler loan to avail of a low interest rate.
Model and brand – Preferably you must select a brand and model of two wheeler which are well-known and carry a high resale value in order to secure a low bike loan interest rate. On part of the lender, a popular brand is indicative of an established two wheeler manufacturer, who is regarded as being reputed and reliable. Hence, in the event the borrower defaults on the two wheeler loan, the lender can re-sell the vehicle and retrieve a major part of the loan.
Relationship with the lender – Customer loyalty qualifies as one of the deciding factors where a bike loan interest rate is concerned, and it takes years to establish. So, if you have been banking with a specific lender over the last several years, and enjoy a good rapport with the team, getting a lower interest rate is a possibility. This is because lenders are familiar with you and are well-versed with your financial history, and hence can grant a lower rate of interest as a special privilege.
What also matters in determining bike loan interest rates is your age at the time of availing of the financial aid. Someone who is young enough to yet to take up employment, or is old enough to be close to retirement age will attract a higher rate of interest owing to the question mark looming over the income source.
Bajaj Finserv renders it easy for you to secure a two wheeler loan by presenting all the criteria and factors on its online website.