When it comes to vehicle ownership for everyday commute, two wheelers outrun cars in many ways. One of the top reasons why one would opt for a bike instead of any other vehicle is that it is easier to navigate areas with high traffic during peak hours, which actually is the case in most cities, than any other vehicle. No doubt, a bike also comes much cheaper than spending on a car, thus checking your immediate financial responsibility. The easy availability of a two wheeler loan only furthers this ease.
Today, it is easier than ever to avail of a bike loan for two wheeler purchase if you have a regular source of income secured. You can simply meet a handful of eligibility requirements and apply for the advance online without having to worry about extended paperwork requirements. However, as a credit option, a bike loan creates monthly financial responsibility up to the agreed tenure, making it essential for lenders to screen an applicant’s capability to afford and manage the loan. Let’s take a look at some of the essential aspects you must know when availing of a bike loan for two wheeler purchase. Let’s start from eligibility and documents.
Eligibility and Documents Required for a Bike Loan
Depending on the lending institution selected, you would need to fulfil a set of criteria to be eligible to avail of a two wheeler loan. Some of the standard requirements you might need to fulfil for the purpose include the following.
- Age above 18 years
- Should be a self-employed or a salaried individual
- Must have a regular source of income
- Must be a residing Indian citizen with a minimum of one year of stability
- Should hold a decent credit score
One also needs to verify his/her eligibility along with identity through necessary document submission, Although, the paperwork requirement for availing a bike loan today has been reduced to the minimum, you still need to provide a handful of documents along with your application to proceed. The standard paperwork requirement for a bike loan includes the below-mentioned documents.
- Identity proof including PAN card, Aadhaar card, Voter ID card, passport, driving license, or any other photo identity proof issued by the government or any authorised body
- Proof of address including Aadhaar card, Voter ID card, passport, ration card, utility bill, or any other government-issued or authorised-body issued document carrying the required address
- In the case of salaried individuals, proof of income to be submitted include salary slips, bank account statements, and income tax return filed, etc.
- For self-employed applicants, documents serving as proof of income comprise bank account statements, financial statements of the business, an income tax return filed, or any other valid document
You may be asked to provide additional documents by your selected lender for successful bike loan processing.
After having checked if you fulfil the eligibility requirements, you can proceed to apply for your required loan amount with the necessary documents in place. It is ideal to go for an online application process offered by various lending institutions today to ensure a fast-tracked and hassle-free two wheeler loan processing for approval as well as disbursal.
Loan Amount Requirement and Availability
When purchasing a bike through external financing, you must first decide on the loan amount requirement based on which you would proceed to check affordability and apply. For this, the first step to go forward with is to zero in on a suitable two wheeler model.
Note that as you are making the purchase through credit, it is a must that the cost of your selected bike model remains in your budget. Thus, you can take an estimated idea of the price of a suitable bike model based on which you can proceed to determine the loan offers available.
As different financial institutions offer varying loan values, you would need to go for an in-depth market research to decide on a few suitable loan offers. With some of the best lenders, the loan amount can be sizeable, up to Rs.50 Lakh to accommodate high-end bike models as well.
One must know that a two-wheeler loan is a secured funding option wherein financing requires asset collateral. However, unlike other collateral-based loans where a personal or business asset is required as security, you do not need to provide a separate asset as collateral as the bike so purchased serves as a security itself.
When approving a bike loan, lenders keep bike ownership as security through hypothecation, wherein the right to sale or auction the bike is reserved by the lender in case of complete or part-default in loan repayment. You can obtain an NOC for the release of such or any claim on the bike by your lender after complete repayment of your loan liability.
Loan to Value
When it comes to two-wheeler financing, the concept of Loan to Value or LTV is also involved. As per the rules regarding collateral-based lending, the maximum amount available for a borrower as a loan is capper through LTV. Herein, LTV defines the loan amount availability as a percentage of the current market value of a collateralised asset.
Thus, in the case of bike loans, suppose LTV is pegged at 75% and the bike you plan to purchase with the loan amount carries a market price of Rs.2 Lakh. In that case, the loan availability for you would be limited to Rs.1.5 Lakh, i.e., 75% of the price.
Some of the best lenders in the market, especially NBFCs, allow high-value financing for bike purchase by setting the LTV for two wheeler loans at 90%.
Before making your bike loan application, you must also consider the tenure flexibility available. Although bike loans are often short to mid-term advances, an extended flexibility in tenure availability shall help an individual choose the right repayment term based on his/her repayment capacity as well as financial standing.
A flexible tenure allows one to determine the EMIs he/she would need to pay every month for the loan amount availed as per interest applicability on the advance. It thus ends up helping with informed decision-making based on your loan affordability.
Interest Rate Applicable
With several lenders offering a two-wheeler loan across the country, the interest rates on these loans vary too. However, the increasing competition among financial institutions has made these loans affordable for the working class, thus helping with loan affordability and easy EMI payment.
You must, however, make sure to compare lenders available in the market to decide on the most suitable loan option. With a high eligibility than the minimum requirement, you also stand a leverage to negotiate for better rates on your loan.
The affordability of your bike loan is a combination of multiple factors and not just the interest rate levied on it. A change in these factors has varying impacts on your total loan liability as well as the EMIs payable. For instance, if you select a higher loan amount than determined initially, it would automatically increase your total loan liability as well as the EMIs, and vice versa.
However, if you choose an extended tenure, it would result in reduced EMIs. Although the interest calculated over an extended tenure would increase the total loan liability still. Similarly, if you choose a shorter tenure, your monthly repayment liabilities, i.e., the EMIs will increase while the total loan liability will be reduced.
You must also take into consideration other fees and charges levied on your two-wheeler loan to determine the ultimate affordability of your advance. Make sure to compare it with your monthly budget and decide accordingly.
Financial Tools to Use
Lending institutions also provide dedicated financial tools to help you assess the loan liability and other aspects for an informed borrowing decision. For instance, when determining affordability for your monthly repayment liability through instalments, you can use the EMI calculator which only requires you to input your loan principal, a suitable tenure, and the applicable rate of interest. Based on these values, it reflects the EMIs payable, the interest payable for the entire tenure, and the total loan liability. You can change values entered for the loan principal and/or tenure to arrive at a suitable EMI option that helps you repay your loan amount conveniently.
Similarly, you can also use financial tools like an eligibility calculator that should help you assess the maximum loan amount available to you based on certain parameters.
Once you have applied for the loan, the lender will go through your profile to assess whether you hold a suitable financial capacity to repay the two wheeler loan applied for. If you hold a high credit score above 750 along with all income sources that you have, it can help you secure the loan at favourable terms such as high financing value at competitive rates. Once the loan is sanctioned, make sure to go through all stated terms of the loan to ensure that the conditions laid down by the lending institution are suitable for you.
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