Two-wheeler can be a preferred way of commuting to work, school, or even for daily chores. However, for some individuals, providing the entire funds required for the purchase may not be available. In such situations, two-wheeler loan can be a systematic way of purchasing a scooter or motorcycle without overburdening finances. This article explains process of obtaining a two-wheeler loan and which factors affect the interest rate of a two-wheeler loan.
What is a Two-Wheeler Loan?
Two-wheeler loan is similar to other credit facilities and allows an individual to finance the purchase of a two-wheeler. The vehicle is purchased by the borrower, while the lender pays directly to the dealer. The borrower needs to repay the loan in instalments every month throughout the loan’s tenure.
This facility offers improved financial management, especially for salaried individuals, students, and small business owners who need a two-wheeler but are not in a position to provide a lump sum amount.
How Two-Wheeler Loans Work?
Two-wheeler loans are similar to other loans that require collateral. Let us understand how finance for two wheeler works.
- Loan Disbursal: The disbursement of the approved loan amount is made directly to the automobile dealer.
- Ownership: The borrower takes possession of the vehicle, but the lender owns the vehicle until the full amount is paid.
- Repayment: The agreed period is repaid in the form of Equated Monthly Instalments (EMIs). Once the loan is repaid, complete ownership is transferred to the borrower.
Eligibility Criteria
The lenders have various eligibility criteria for two-wheeler loans. While these can differ between various lenders, some of the common conditions are as follows.
- Age: Usually between 18 and 65 years
- Income: A regular income stream (salaried or self-employed)
- Credit Score: Favourable credit history makes it easier to get approved.
There are some lenders who require residential stability for approval. These are considered by the lenders to determine your capability to repay and the risk associated with lending.
Required Documents
The documents required for application are kept to a minimum for verification, and, generally, they are:
- Identity proof (Aadhaar, PAN, or voter ID)
- Residence proof (lease agreement, utility bill, etc.)
- Income proof (salary slips, bank statements, or ITR)
- Passport-size photographs
- Estimation or invoice from the two-wheeler dealer.
Web applications may allow you to upload the necessary documents, reducing physical visits.
Factors Affecting Two-Wheeler Loan Amount
Loan amounts are usually offered depending on the price of the vehicle and your income levels. Some key factors include:
- Loan Amount: Most lenders finance 80% to 100% of the on-road price of the vehicle. The exact loan amount may differ among lenders.
- Margin Requirement: Margin represents the amount that the borrower is obligated to put up front. For example, if the lender says that it will finance a maximum of 80% of the total cost, then it is up to the borrower to provide the remaining 20%.
- Loan Tenure: The repayment period may range from 12 to 60 months, depending on the lender’s policy. Your EMI amount is affected by the tenure of the loan. A higher tenure may provide affordable EMIs. However, it increases the total cost of the loan.
Interest Rate of Two-Wheeler Loans
The two wheeler loan interest rate is a critical factor that you must consider before applying for the loan. Your repayment cost and EMI amount are based on it. These interest rates are determined by various factors such as:
- Borrower’s Credit Profile: A favourable credit rating may result in affordable interest rates.
- Type of Lender: Depending on the lender, the loan may have structured or flexible rates that are tailored for the customer.
- Vehicle Type: Some lenders offer different rates for electric, petrol, or performance vehicles.
- Down Payment: A higher down payment may reduce the amount financed and may reduce the interest cost.
Charges That Should Be Considered
In addition to the interest, a variety of other fees may be charged. These should be carefully reviewed in the loan agreement:
- Processing Charge: Levied at the point of sanction of the loan, typically 1% to 3% of the loan amount. However, the exact percentage may differ among various lenders.
- Late Payment Fee: There can be a charge levied for late EMIs
- Foreclosure Charges: Some lenders charge you if you prepaid the loan before its term ends.
- Insurance Requirement: Some lenders insist on applying for vehicle insurance.
Understanding these fees allows one to calculate the overall cost of the loan.
Conclusion
Two-wheeler loans provide a convenient way of owning a vehicle with the ease of managing cash flow through monthly payments. Whether you are a working professional, a student, or self-employed, the loan provides flexible ownership with minimal initial investment. Prior to selecting a lender, it is essential to know the process of two-wheeler loan, the eligibility criteria, and compare two-wheeler loan interest rates. Being aware can assist in making informed borrowing choices and efficient loan management.
