What are the Factors that Determine the Two-Wheeler Loan Interest Rate?


Banks and non-banking financial companies offer a two-wheeler loan to help borrowers buy their dream bikes without redeeming their savings. It is the best way to manage your finances when you do not have any other means.

The best part of a two-wheeler loan is that you can get from 80% to 100% of the vehicle’s on-road price as a loan. On the other hand, you can use a two-wheeler EMI calculator to determine a suitable EMI for yourself.

Also, the availability of affordable interest rates enables you to repay the loan amount without delays and manage your monthly expenses. But, getting a loan with a lower interest rate depends on several factors like your income, the loan amount you need, your credit score, the loan type, etc.

Here are the factors affecting your two-wheeler loan interest rate:

The amount you borrow

The interest rate you get depends on the total amount you borrow. The higher the loan amount, the higher interest you will have to pay. Some lenders may even offer up to 100% of your bike’s on-road price as a loan. However, it would be wise to opt for a lower percentage of the bike’s value as a loan and pay the rest as a down payment.

When a lender approves your application for a higher loan amount, it generally offers a higher interest rate to cover their losses if you defaulted. You can use a two-wheeler EMI calculator to determine your EMI affordability and choose a loan amount based on your needs.

Loan repayment tenure

To put it simply, the longer the loan tenure, the higher the interest rate. When you opt for a longer loan tenure, your chances of defaulting on your two-wheeler loan increase. Lenders consider this a risk and therefore offer a higher interest rate to justify the risk involved.

So, if you want to get a lower interest rate, you must also consider the loan tenure. If you have the budget, it would be wise to apply for a short-term loan tenure. It enables you to reduce your interest rate and also the financial burden on your monthly budget.

Credit score

Your credit score plays a vital role in your two-wheeler loan interest rate. Your credit score indicates your creditworthiness. That is the reason why lenders consider your CIBIL score as one of the crucial aspects of your loan application.

Your credit score is assigned to you after considering the following factors:

⦁ Credit history
⦁ Length of credit history
⦁ Credit utilization
⦁ Credit mix
⦁ New credit

It ranges between 300 and 900, and the closer you are to the 900 range, the higher chances you will have to secure a lower interest rate. Most lenders consider a minimum CIBIL score of 750 or above.

Type of loan

There are generally two types of 2 wheeler loans – secured loans and unsecured loans. A secured loan necessitates the borrowers to pledge any asset as security to get a loan. However, an unsecured loan does not have such a requirement. You do not need to pledge anything as collateral to obtain a loan.

The interest rate you receive depends on the type of loan you have chosen. It is a common fact that an unsecured two-wheeler loan comes with a higher interest rate than a secured loan because the risk associated with an unsecured loan is higher.

Location of dealership

You might have noticed that the price of the same model of the bike varies across dealerships. The reason can be attributed to factors like the location of the dealership, local taxes, and the cost of delivery. The two-wheeler prices may vary at different dealership locations as manufacturers may have to incur extra charges.

A varying price of the bike will also have an impact on the loan amount you require. If your two-wheeler costs you more, your interest rate will also increase. So, if your priority is to get a bike loan at a lower interest rate, it is advisable to find a dealership that offers a lower price for your bike.

In short

Getting a two-wheeler loan is a financially savvy way to own your dream bike and manage your finances without redeeming your savings or investments. However, how well you get to manage your finances depends on the interest rate you receive.

You can use a two-wheeler EMI calculator to plan your finances by determining your EMI, using the loan amount, interest rate, and loan tenure.