Learn How Interest on Bike Loan Is Calculated | RenewBuy

Learn How Interest on Bike Loan Is Calculated

Be it women, students, or the urban traveller; a bike has become a necessity for many in India. The two-wheeler is an amazing vehicle to drive on the narrow roads, congested traffic areas, or in crowded marketplaces. At an average price of Rs 50,000 to Rs 70,000, two-wheelers aren’t very expensive to own. It is important to bring down the cost of the bike by knowing what goes behind the interest amount that is appended to your two-wheeler’s on-road price.

Interest is the price demanded by the lender to take the risk of lending money to a borrower. From a lender’s perspective, interest can be said to be a rent on giving money. For a borrower, it will be the cost he will have to pay to get the money. The interest rates for two-wheeler loans in India fluctuate between 13% and 27%, depending on various factors. It is important as a loan applicant to know about these factors so that you can present your profile in a better light and incur a lower rate of interest on your loan application and approval.

Here are some factors which determine the interest rate on your bike loan

1.Amount of down payment

A lender will consider lowering the interest rate if the amount of down payment is high. A bigger down payment indicates that the bank or NBFC (Non-Banking Financial Company) will have to take a lower risk by lending a smaller amount; hence the interest rate may go down.

2.Tenure of the loan

If you opt for a higher duration loan, the bank may typically charge a lower rate of interest. A bike loan usually carries 3-year and 5-year tenure. The higher the tenure of the loan, the lower the interest rate charged and vice versa.

3.Lender profile

A traditional banking institution like HDFC and ICICI will offer lower or standard interest rates. However, when you approach an NBFC, it might go a bit higher. It is the highest for an unregulated lender like P2P lenders.

4.Type of vehicle

Two-wheelers like scooters will incur a lower rate of interest. For luxury two-wheelers or superbikes, the interest rate will be higher, as the lender will be taking on more risk by lending greater amount to the borrower in the latter case.

5.Applicant's employment type

For an employed person, the rate of interest is lower than what is charged to a self-employed individual or a businessman. Since a salaried person is considered to have a stable income and surety of repayment, he is charged a lower interest rate.

To conclude

Interest rates on bike and two-wheelers are generally floating. Because of the depreciating nature of two-wheelers, interest rates are higher than what is charged on other consumer products. By carefully considering these factors, you can optimise the amount of loan and interest rate that you are offered by the bank.