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Mastering Motorcycle Loans: Understanding the Key Influencers on Interest Rates

Two wheeler finance presents a viable solution for those whose dream of owning a motorcycle is hindered by financial constraints.  Applying for a two-wheeler loan is straightforward, characterised by minimal documentation requirements, and can be conveniently executed online or offline.

This article highlights the top features of two-wheeler loans, exploring the best tips to get the lowest two wheeler loan interest rate in the dynamic landscape of the Indian financial market.

Two-Wheeler Finance – The Top Features

Following are the top features of two-wheeler loans from reputable financial institutions like ICICI Bank:

  1. Digital Process – Place is irrelevant since you can apply for a low-interest two-wheeler loan anywhere in India. All you need is a smartphone and internet connection.
  2. Quick Disbursal – If you apply online for a motorcycle loan, rest assured you will get the fastest approval and use the money immediately.
  3. Low Processing Fee – The processing fee is usually the lowest for online applicants of two-wheeler loans.
  4. Lowest Interest RatesTwo-wheeler loan interest rates typically start from Rs. 36 per 1,000 for eligible customers. The following section discusses the eligibility criteria in more detail.
  5. Full Funding – Some financial institutions like ICICI Bank provide up to 100% funding for eligible pre-approved customers.
  6. Minimal Documentation – You need five to six documents at most to apply for a motorcycle loan.

Now you know the top features and benefits of two wheeler finance, let’s understand the factors affecting motorcycle loan interest rates in India.

Interest Rates: What Is It and How Does It Affect Your Net Liability?

When it comes to loans, interest rates always take centre stage. This is because the interest rate is the extra amount you must spend to repay the loan. And even a 0.5% difference in the rate can significantly affect your net loan expenses.

In this regard, two-wheeler loan interest rates typically range between 10.05% and 26.03% depending on the applicant’s eligibility and the factors discussed in the following sections.

Make sure you research and understand the key components of interest rates, as they are pivotal in shaping your financial liabilities. 

The Top 5 Factors Affecting Motorcycle Loan Interest Rates in India

The following are the top five factors affecting two-wheeler loan interest rates in India:

  1. Down Payment

Down payment refers to the portion of the loan you must pay to avail of two-wheeler finance. Some financial institutions fund only up to 75% of the bike’s value. In such a situation, you have to pay the remaining amount as a down payment.

Although some financial institutions offer up to 100% funding to pre-approved customers for a bike loan, the interest rate may increase to minimise the credit risk. Hence, the interest rate of a motorcycle loan is closely related to the down payment amount.  

If you want to get the lowest two-wheeler loan interest rate, increasing the down payment amount as much as possible without affecting your finances would be wise. If you make a higher down payment, your loan liability will be low, and your financial institution will most likely reduce the interest rate since their credit risk will be minimal.

  1. Net Income

Net income refers to the money you have in your hand after deducting all your fixed expenses – the higher your net income, the lower the credit risk. This is another vital factor that influences two-wheeler loan interest rates.

Generally, financial institutions offer the lowest rates to salaried professionals with a fixed monthly income. Alternatively, they may offer the same rate to self-employed professionals with a decent net income.

  1. Vehicle Type

The vehicle type and price also play a prominent role in determining the two-wheeler loan interest rate. If you plan to purchase a high-value motorcycle, your loan’s applicable interest rate might be low since the loan amount will be high. Moreover, buying a motorcycle with a high resale value may save some money on interest rates.

So, check your bike’s type and price before negotiating the rates with your financial institution.  

  1. CIBIL or Credit Score

Indian financial institutions place much importance on their customers’ credit scores. A credit score check is mandatory before loan approval. You may expect the best two-wheeler loan interest rate if your credit or CIBIL score exceeds 750.

However, it doesn’t mean you cannot get a loan if your score is below 750. But, if your score is less than 750, your financial institution may increase the interest rate to minimise their credit risk.

So, checking your credit score by visiting the official website of TransUnion CIBIL before submitting your loan application to the financial institution is good. Timely loan repayments, a good credit mix, a low debt-to-income ratio, and frequent monitoring are ways to keep your credit score healthy.

  1. Loan Terms

The loan term is another crucial factor affecting two-wheeler loan interest rates. Borrowers often opt for an extended tenure to keep their EMIs affordable. But, an extended tenure may also mean an increased interest rate since financial institutions factor in the risk period while determining the rate.

An increased interest rate becomes imperative to offset the financial damage if the borrower fails to repay the loan. In contrast, you may benefit from a lower interest rate by keeping the tenure shorter. However, a shorter tenure may also mean an increased EMI. So, planning before deciding is crucial to get the best benefit from a two-wheeler finance.  

Final Thoughts

Getting the best two-wheeler loan with favourable interest rates is not difficult if you know the right way. Ensure you spend enough time researching and understanding the factors influencing interest rates. This includes assessing your financial health, credit score, and eligibility criteria set by financial institutions.

Take the time to compare offerings from different financial institutions, considering the interest rates and the terms and conditions associated with each loan. It will help you choose the best loan option based on your needs and goals.

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