Two Wheeler Loan Interest Rates India
Owning a two-wheeler (whether a bike or a scooter) in India is more than just a necessity. Many people have strong emotional ties to this trustworthy machine that helps them commute conveniently every day. Moreover, it has become easier today to own a two-wheeler due to the availability of two-wheeler loans at competitive interest rates offered by several banks across India. But not everyone is aware of the ways in which these interest rates are calculated. Knowing this can help you make smarter financial decisions when purchasing a two-wheeler. So, here is a detailed breakdown of two-wheeler interest rates and how to calculate them.
How two-wheeler loan interest rates work
Just like any other loan (such as a car loan), a two-wheeler loan interest rate is calculated as a percentage of the amount borrowed. Most banks, like IDFC FIRST Bank, charge anywhere from 8.5% to 18.9% interest on bike loans. This percentage is applied annually to the outstanding loan amount.
This interest is essentially the additional amount you pay on top of the principal (actual price of the bike). You can think of it as a fee charged by the bank for giving you the facility of availing the loan. When weighing the trade-offs between paying the full cost upfront and opting for affordable equated monthly instalments (EMIs), this bike loan interest rate is often justified.
Factors influencing the interest rate
With an understanding of how the interest rate works, it is also necessary to know the factors that can contribute to increasing or decreasing the interest rate charged by a bank or a non-banking financial company (NBFC).
1. The first factor that influences a bike loan interest rate is credit score. Those with higher credit scores are offered a lower interest rate due to the confirmed security that they are most likely to pay their EMIs on time. On the other hand, someone with a lower credit score is usually offered a higher interest rate.
2. The second factor is the stability of one's income. Those with a stable source of income, like a job at a government or private organisation, are considered lower-risk borrowers due to their job security. On the other hand, business owners and self-employed individuals with irregular or seasonal income sources are considered high-risk borrowers. Hence, the former is typically offered a lower interest rate, and vice versa.
3. The third factor is the tenure of the loan. When using a two-wheeler loan interest rate calculator, you can check that bike loans with shorter tenures have a lower interest rate and vice versa. This is because a lower loan tenure means the bank gets back its money faster, so a lower interest rate makes sense due to the reduced risk of non-payment.
4. Lastly, the type of two-wheeler being purchased also has a role to play in deciding the interest rate. Premium bikes often come with lower interest rates due to their higher ex-showroom prices. Electric bikes and mid-premium bikes come with a slightly higher interest rate. Commuter bikes often come with a much higher interest rate due to their lower ex-showroom prices.
By understanding the factors that decide the two-wheeler loan interest rates in India, you can make informed decisions on which bank to choose for your first two-wheeler. However, regardless of which bank you choose, always apply for a bike loan within your means to avoid getting stuck in a debt trap.
Key takeaway
Understanding the mechanics of bike loans will help you make a more informed borrowing decision. Knowing how to compute EMIs using online calculation tools can help you save significantly over the loan repayment period. You may be taking your first scooter out, or you may be upgrading to a finer motorcycle, but it is important to select the appropriate lender and loan facility.
