While the start of 2022 saw a slump in automobile sales, the two-wheeler segment remained popular among Indian citizens. Two-wheeler sales are on an upward trajectory with popular brands such as Honda and TVS seeing monthly growth. During the holiday season, brands offered numerous offers and deep discounts, which led to retail sales growth of 9% year-on-year in September.
During this period, future bicycle owners took advantage of nominal interest rates offered by lenders. The two-wheeler loan interest rate dictates the viability – and cost – of a two-wheeler for any buyer. Banks, NBFC and captive finance companies offer interest rates ranging from 6.85% to approximately 28.3% per annum. If you are planning to buy a two-wheeler in 2023 and want to opt for bike financing through a two-wheeler loan, you should know the various factors that may affect the interest rate of your loan bike.
Types of bike loan interest rates
When applying for a two-wheeler loan, it is important that you know the different types of two-wheeler loan interest rates.
– Fixed interest rate: If you opt for a fixed interest rate, the EMI amount remains the same throughout the repayment period. The interest rate remains unchanged regardless of market movements.
– Variable interest rate: If you choose a variable interest rate, the EMI amount may change depending on market conditions. Thus, the variable interest rate may be lower or higher than the fixed interest rate, which leads to uncertainty.
Factors Influencing Bike Loan Interest Rates
If you opt for bicycle financing through a two-wheeler loan and choose a fixed interest rate, then several factors can influence the interest rate.
One of the main factors that can influence the interest rate of a two-wheeled loan is your credit score. Today, banks are afraid to approve loans if you have a credit score of less than 750. On the other hand, NBFC sanctions loans even if the applicant has a credit score of 600. However, the rate of interest in relation to the loan amount is considerably high. . So, if you can establish a good credit profile and have a credit score of over 750 in 2023, your loan application will be approved fairly quickly and you will enjoy nominal interest rates.
While looking through bike financing options, you should consider making a substantial down payment, covering 30-40% of the vehicle’s on-road price. This, in turn, leads the lender to charge a nominal interest rate.
- Employment status and income
Your professional situation and your income play an essential role in determining the interest rate of the two-wheeler loan. If you are a salaried employee and earn more than ₹1 Lakh per month, your loan application will be approved faster and you can avail low interest rates.
If you plan to stay or move to a metropolitan city this year or in 2023, you will incur high interest rates. This is due to the debt-to-income ratio (DTI). Since your daily expenses will be higher in metropolitan cities than in Tier 2 cities, your income will need to be significantly higher to repay the loan. Thus, the lenders can charge a higher rate of interest on the loan amount.
Your age will also play an important role in determining the interest rate for the two-wheeler loan. You can easily pay off your debt if you are young – in your 20s or 30s. However, your ability to repay decreases significantly if you are older – in your late 50s. Lenders will consider these factors while expanding bike financing options. So, the older you are, the higher the interest rate will be. If you are about to reach your late 50s in 2023, then you will have to bear high interest rates.
The model of two-wheeler, its type and its brand also influence the interest rate charged by the lender. The more expensive the two-wheeler, the higher the interest rate. Lenders prefer to finance bikes that inherently have a high resale value.
Finally, the term of your loan will also affect the interest rate on the loan amount. The longer the repayment period, the lower the interest rate.
How to lower the interest rate of the two-wheeler loan?
If you still have at least 5-6 months to go before you opt for bike financing in 2023, there are several steps you can take to improve your credit profile. This, in turn, will allow you to benefit from low interest rates.
Improve your credit score
You can try to improve your credit score, and this can be done by paying off your debts and paying your EMIs on time. Once your CIBIL score reaches 750, you can apply for a bicycle loan and benefit from a lower interest rate for the two-wheeler loan.
Debt to income ratio
You can also improve your debt-to-equity ratio by paying off old loans, reducing miscellaneous expenses, and making credit card payments on time. If you bring your debt ratio below 40%, you’ll have a better chance of getting attractive interest rates on your bike loan.
Improve your relationship with the lender
You can either negotiate with the lender or apply for a two wheeler loan from a lender with whom you have an existing relationship. You can talk to your bank and see if you can get low interest rates on the two wheeler loan.
The aforementioned factors will dictate the interest rate for your two-wheeler loan. Additionally, you can aspire to get low interest rates by improving your credit profile and debt-to-equity ratio in 2023. Some lenders also have no minimum credit score requirements and offer nominal interest rates with flexible repayment terms. For example, Bajaj Markets offers two-wheeled loans at low interest rates and does not require a minimum credit score! You can benefit from attractive interest rates for the loan of two-wheelers by opting for bicycle financing options on the digital platform.