If you’re looking to get yourself a snazzy two-wheeler, we’ve got all the answers to your queries regarding a two-wheeler loan and then some.
Most Indians suffer from grave back and spine related problems. This is because the roads of our culturally diverse country are congested and pockmarked with potholes of all shapes and sizes. It requires dexterity and skill to get from point A to point B without taxing the shock absorbers of your vehicle or screaming out expletives. One way to navigate these challenges is by getting a bike.
You might think, ‘What’s the big deal about getting a bike?’ It’s a fairly non-expensive affair. However, this is far from the truth since more than 50% of India’s populace hails from towns and villages where purchasing a bike is not entirely easy on the pocket. A bike that costs Rs. 50,000 can disrupt the budget of many households. But, that’s where a Two Wheeler Loan comes in.
We don’t need to explain the concept of a Two Wheeler Loan to you. It’s all in the name. This loan isn’t just for those who need funds to purchase a bike, it’s also for those who don’t wish to burden themselves with one, big payment.
A Two Wheeler Loan is a smart way to purchase a bike since it lets you repay the amount in affordable EMIs. Even though a Two Wheeler Loan will come with the burden of interest payments, paying EMIs is a lot more pocket-friendly than parting with the massive amount at one go. This will help you accumulate more funds in a Savings Account or divert it towards a short-term investment plan.
So, whether you are looking to get your hands on an easy and fun ride like an Activa or a monster-like Ninja, a Two Wheeler Loan will help you fund your fancy. This article talks about Two Wheeler Loans in depth and will answer all your queries regarding eligibility criteria, loan features and other nitty gritties. Just sit tight as we tackle these questions one at a time.
Additional Reading: Tyred Of Walking? Here Are 10 Benefits A Two-Wheeler Loan Can Offer You
Round 1: Eligibility Check
(Fuel, tyres… check)
Banks won’t give you a loan just because you happen to be well-dressed and pretty-faced. They will see through the exterior and find out all about your current financial situation and loan repayment capacity before saying yes.
Keep in mind that your financial standing and loan repayment capacity are mutually exclusive requirements. You might have the financial capacity to afford a loan, but if the lenders sense that you are not responsible for repayments they could always reject your application.
A bank extends a loan for two purposes – to help you with your needs and to help themselves make money via interest. It’s a two-way game and you have to play your part of a responsible borrower.
It’s also good to know that due to rising debt among youngsters nowadays, banks are extra cautious when scanning loan applications. They make sure that all eligibility requirements are met. Sure, they MAY make concessions on rare occasions, but their risks are calculated and you need to prove that you are worth their trust.
Additional Reading: Two-Wheeler Loans – Everything You Need To Know
Enough with the talk. Now on to the eligibility requirements.
Age: For most loans, the minimum age requirement is 21 years, but for a Two Wheeler Loan some lenders are nice enough to consider individuals of at least 18 years of age. This is because individuals belonging to this age group are primarily college going students, who seek out bikes for their daily commute to college. Teenagers have excellent convincing skills. They can make their parents shell out a little more than needed on a bike.
A bike is something most people need early on in life, earlier than a Home Loan or a Personal Loan at least. Another reason bankers lower the bar on the age requirement is because Two Wheeler Loans are usually small loans that can be easily repaid. If you are 18 and considering a Two Wheeler Loan, first ask the bank if you qualify. There might be conditions that need to be met before a bank will extend you a loan.
For you older folk out there looking to get a bike, the maximum eligible age is 65 years. If you are nearing retirement and want to go on one last ride, apply for a Two Wheeler Loan without a delay.
Additional Reading: Personal Finance For Teenagers
Employment: After age, the employment status of an applicant is the next most important criteria for banks. Only if you are earning a living will you be able to afford a loan.
You could be a salaried employee or a self-employed individual. Both parties are eligible to apply for a Two Wheeler Loan. Salaried individuals find it easier to get a loan because they get paid regularly on a monthly basis, and are less likely to miss EMI payments.
On the other hand, self-employed individuals get money in spurts and might not be able to repay their EMIs regularly. However, a healthy bank account statement can remove all concerns a bank might harbour about a self-employed applicant’s financial standing.
In a nutshell, you need to be earning a steady income that can afford timely loan repayments along with all your other regular monthly expenses. 18 year-olds can apply for a loan with their parents as guarantors.
Another method is where the bank structures a Two Wheeler Loan taken by a student to the likes of an Education Loan. This will allow students to take a loan when in college and start repayment after securing a job.
Additional Reading: Education Loans – Things To Think About
Employment Tenure: Being employed is not enough. If you’ve only just started working, then you might not get a loan sanctioned. Lenders look for borrowers who have served at least 6 months to 1 year at their current job.
This speaks volumes about the borrower’s ability to stay put and assures the banks that the person won’t quit his or her job anytime soon. A stable job means stable income and an assurance to the bank that the borrower will repay the EMIs on time.
As part of a job stability test, lenders will also check your employment history. Jumping too many jobs won’t work in your favour.
Additional Reading: 6 Saving Tips For New Job Entrants!
Income: This is pretty obvious. It’s a money game and your income matters more than anything else. The income requirement is comparatively lenient for urban residents since they earn better than those from a more rural setting.
So, what is the minimum income required for getting a Two Wheeler Loan? This differs from bank to bank. It usually starts at Rs. 21,000, but can be lower for some banks since Two Wheeler Loans are small amount loans.
You could get good deals if you are earning a monthly income of Rs. 15,000 as well. We’ll say it again, it’s always better to check individual bank requirements before applying.
Additional Reading: Women! Here’s How To Boost Your Income
Proof of Residence: Banks can’t have you take out a loan and scooter off. They need to know where to catch you if you miss your EMIs. Just like your employment tenure, banks prefer if you have lived at the same residence for some time.
A year’s tenure, at the very least, at the same residence will work in your favour. However, try not to skip town to avoid repayments. Banks will track you down and take strict legal action. Mess one loan up and no bank will give you a loan in the future. Be careful and be responsible.
Credit Score: Now we are talking business. Is the term confusing you? So what is a Credit Score? Go back to your school and college days and think about the importance of good marks. A Credit Score is something similar.
A Credit Score summarises your Credit Report. A Credit Report is a document about your bank accounts, your credit activities and all things financial. The report also mentions any misses or mistakes you might have made with your finances, such as missing loan repayments. All this is summarised by a score called the Credit Score.
A score of 750 and above is considered excellent. No score or a low score reduces your chances of getting your loan application processed.
Where to check your Credit Score? Credit rating agencies calculate your score. To know more about how credit scores work and how to check them, click here. Always check your credit score before applying for a loan. If your score is weak, pull up your socks and work it up before submitting your Two Wheeler application.
Keep in mind: Applying for too many loans at the same time hurts your credit score. Take time to do your research and then apply for a loan. If your loan gets rejected then wait for a few months before you reapply. Rejection of your loan application can also negatively affect your credit score.
Additional Reading: Tips To Improve Your Credit Score
Round 2: Documents required for a Two Wheeler Loan
(All the paperwork)
Once you pass the eligibility criteria with flying colours, you need to furnish documents to prove the same. Mentioned below is a list of documents you will need to submit to power up your Two Wheeler Loan application.
Photos: As with every loan application, the first thing you need are photographs of yourself. The number and dimensions will be stipulated by the bank. Usually, passport and stamp size photos suffice. Make sure to carry a bunch of them with you.
ID Proof: This is a must. Your identity proof, of course, helps verify your identity and in many cases acts as a proof of age as well. Any government authorised document, such as a voter ID, Aadhaar Card, driving licence etc will work as your identity and age proof.
Make sure that the name and date of birth mentioned in your application match those mentioned in the ID proof. Any discrepancy, even a minor spelling error, can lead to rejection of your application.
Address Proof: Banks will not approve your loan application without an address proof. If you are residing in a rented house you will need to furnish a rental agreement for the same. Banks will ask for proof of both your rented and permanent addresses.
While your ID card can work as proof of your permanent address, your rent agreement and utility bills will do nicely in case of a let-out property. To ensure that you have been staying at your residence for a substantial period of time, lenders might ask you to furnish utility bills for the last 3-6 months.
So, go through your files and folders and fish out all those old bills. They will certainly come in handy.
Employment Proof: If you have a stable job and earn a regular salary, that’s great! But, how do you prove it to the bank? You can do so by submitting your salary slips, offer letter, bank statements and Form 16. These documents will validate your salary claim and tell the bank about your liquidity situation.
Bank statements are a good way for the bank to learn about your monthly liabilities. You could be earning well, but if you tend to squander all your money then banks can reject your application. A good salary doesn’t automatically mean you can afford to take out a loan. If this is a matter of concern then work on your savings for a few months before submitting your application.
When the time comes for document verification make sure you keep your originals as well as photocopies handy. Banks might ask you to submit more than one copy of your documents.
Additional Reading: How To Get An Aadhaar Card
Round 3: Two Wheeler Loan Fees
(All the extras you need to know)
With the basics covered, let’s take a look at the fees involved in getting a Two-Wheeler Loan.
When applying for a loan, the first thing applicants consider is the interest rate. The objective is to keep the total loan outstanding amount closest to the actual price of the bike. Nobody fancies paying big amounts in interest money.
But, interest rates are not the only charges you need to be mindful about. There are many other fees and charges applicable to a Two-Wheeler Loan. Listed below is a low-down on all the charges you might have to pay on your Two Wheeler Loan.
Processing Fee: This is a fee charged for processing any loan request. It is usually calculated as a percentage of the loan amount. Processing fees can differ from applicant to applicant, depending on how strongly each individual meets the eligibility criterion.
This is an important component of the loan and must be closely scrutinised. Many times banks waive the processing fee to win more borrowers for their Two-Wheeler Loan offerings. Always look out for this number and make sure that it isn’t too high.
Prepayment Fee: You might think that it’s good to close your loan before the tenure runs out. While this may be true, prepayment or early closure of your loan doesn’t come without a price.
Banks make money by earning interest on the loan amount lent. If you return this money earlier than the stipulated time period, the interest payable reduces. So, always ask your banker for prepayment charges.
Ask for both partial and full prepayment charges. Many banks waive this fee after a certain number of months into the loan. Zero prepayment fee is also an added bonus.
Late Payment Fee: It‘s possible that you might miss an EMI payment here or there. With careful planning you can avoid such mishaps, but if you miss making a payment be ready to pay a late payment fee.
Some banks offer a grace period of a few days, while some don’t. Make sure to read the fine print for such details. The best way to avoid this fee is to ensure that you make timely payments.
Conversion Charges: When you take a loan, you are asked to pick between a floating or fixed rate of interest. If at any time during the loan tenure you feel that you need to switch from fixed interest rate to floating, mind you, it won’t come for free. Lenders will charge you a fee for doing so. Make the switch only if it’s profitable to do so after shelling out the conversion charges.
Administrative Fee: This is often confused with processing fees. However, an administrative fee is different. This is a fee charged for all the administrative work to be undertaken for processing your loan. Check the fine print for this or ask the banker if you can’t spot it.
Additional Reading: Planning To Buy A Bike? Here’s What You Need To Know
Round 4: Types Of Two Wheeler Loans
(This or That)
We know choosing a loan is confusing in itself so we won’t bog you down with too many options. There are essentially two types of Two Wheeler Loans. Let’s take a look at what they are:
Secured Bike Loans: When you apply for a loan you can either choose to secure it against a security/collateral or not. People opt to secure their loan against collateral such as a home, bonds or land when they fall short on one criteria or the other.
Some people choose to secure their loan to lower their interest rate or receive other benefits on their loan package. Securing your loan is also a good way to boost your chances of getting your loan approved.
Although this sounds pretty good, make sure you evaluate your finances before securing your loan. If you are unable to repay your loan, the bank will seize your assets and can even put them up for sale. Secure your loan to get benefits, but be sure to make repayments on time.
Unsecured Bike Loans: An unsecured loan is the only avenue left when banks refuse to offer secured loans. Unsecured loans are easier to get than secured loans since they don’t require you to provide collateral.
However, unsecured loans come with higher interest rates than secured loans. But, if you have a good Credit Score, you can request the bank to cut you some slack on this front.
Before deciding what type of loan you want to go in for, make sure you evaluate your financial situation. A secured loan may not necessarily be a lucrative option all the time. Look at your short-term and long-term responsibilities before you make the plunge.
A Two Wheeler Loan is a small loan and you can get one without pledging your assets as collateral. You can perhaps think of securing your loan in case of a Home Loan or a Personal Loan.
Round 5: Features Of Two Wheeler Loans
(The nuts and bolts of it)
If getting a Two Wheeler Loan is your first experience with loans then knowing about the features of the loan will definitely help you with the process. Listed below are the features of a Two Wheeler Loan. Keeping these points in mind will help you make the right decision when you are spoilt for choices.
Margin of Finance: Margin of finance is nothing but the percentage of the cost of the two-wheeler a lender is willing to finance. Banks and financial institutions rarely finance 100 per cent of the value of the product.
In the case of Two Wheelers, banks finance up to 90 per cent of the value of the bike. The remaining 10 per cent is the down payment that you’ll have to pay from your pocket. This is fairly cheap since bikes are cost-friendly. Make sure that you have the down payment money ready before you apply for a loan.
If a bank agrees to fund 100 per cent of the cost of the bike, they usually do so at a high rate of interest.
Loans From The Dealer: When you go to purchase a bike, the dealer will probably inform you about loan offers you can avail. Dealers partner with banks and offer loans at lower interest rates.
So when your bike dealer talks about loan offers, listen carefully. You might get yourself a good deal. Moreover, when you agree to a loan plan offered by your dealer, you can ask them to throw in freebies and some extras. Maybe you can get chrome handles for free? No harm in asking right?
Reducing Loan Burden: If you’ve already taken out a loan but aren’t ready to start repaying the EMIs just yet you could request the bank to start your EMIs after a few months. However, banks will charge you a fee for the same. Also, keep post-dated cheques ready if you wish to delay your loan repayment by a few months.
Income Benefit: Did you know that some banks offer Two Wheeler Loans to individuals earning as little as Rs. 50,000 per year. This might seem improbable, but by extending the loan tenure to 4 years or more, an individual can easily repay the amount without disrupting his or her monthly budget. If there is more than one earning member in the family, they can club their income and apply for a loan.
Prepayment and foreclosure benefit: Closing or making prepayments on most loans before the tenure has lapsed comes at a price. You have to pay prepayment or foreclosure charges.
However, Two Wheeler Loans aren’t particularly huge. Hence, banks either waiver prepayment or foreclosure charges or charge a very nominal fee. So, if you happen to receive a cash windfall, go ahead and close your loan before the decided tenure. You’ll save interest money.
Miscellaneous Costs: Since the quantum of Two-Wheeler Loans is small, banks often add registration, accessories and Two-Wheeler Insurance costs to the loan amount. Unlike with a Car Loan, where you have to pay separately for registration and Car Insurance, you can add these charges to your Two Wheeler Loan and avoid burning a hole in your pocket.
Round 6: The Last Battle
(Points To Remember)
It’s easier to remember something when it is broken down into small components. Keep this in mind when you are working out your Two Wheeler Loan so you know what to ask and what to promise.
Check Your Credit Score: Always check your Credit Score before applying for a loan. A good Credit Score is a green light and could perhaps get you a discount on the interest rate. A bad score means rejection of your application. If your score is in the red, take time to beef it up before applying for a loan. Precaution is better than cure after all.
Hunt and Explore: Use the power of the internet to your advantage. Today, you can do your research from the comfort of your home. A website like our very own, BankBazaar.com, showcases loan offers from an incredible array of banks.
You can compare these loans online and also apply for them online. In fact, we are moving to the paperless stage where your documents, too, will be processed online. So, make the most of the technology available to you.
Read and Understand: When you receive your loan documents, spend time reading them. Read the disclaimers and terms and conditions even if the text is painful to read. Doing this will help you understand all the dos and don’ts about your loan.
Interest Rate Comparison: When calculating your EMIs, make full use of EMI calculators, which will give you a fairly accurate picture of the EMI amount you will be required to pay. This will help you decide whether the interest rate fits your budget or not.
Interest rates could be either floating or fixed. If the interest rates are likely to fall, then a floating rate is probably a better option. Some banks allow you to make the switch from one to the other for a small fee.
Ask Questions: When talking to the bankers, ask as many questions as you can. Do not hesitate. The more questions you ask, the better you will understand your loan. If you don’t understand something, ask the banker to explain the concept to you. You can even put your bargaining skills to test and request them to waive some charges and fees.
Be Prepared: There are two phases of preparation. The first is the monetary preparation. Take stock of your accounts and liabilities before applying for a loan. Will you be able to afford it along with all your other expenses? If the answer is yes, then move on to the next round of preparation.
Keep all your documents ready before you submit your application. You can get a document checklist on the website of your preferred banker. Keep the paperwork ready in advance to avoid any last minute hassles.
This should tell you all you need to know about applying for a Two Wheeler Loan. Go online, compare and apply. If you have questions or queries, post them in the link below and we’ll try our best to answer them.