In today’s fast-paced life when everything seems to move with speed, having a personal vehicle to reach our destination has become a part and parcel of our daily life. Waiting in a long queue to get on a public bus is both time-consuming and hassling, while hiring a cab for our daily commute is simply unaffordable. Though many metropolitan cities boast of local trains or metros, the sheer volume of commuters thronging these facilities is overwhelming. Even if the daily commute to the office is tolerated throughout the week, weekend getaways and hangouts with family and friends require a personal vehicle. With cars being expensive and affordable to few, two-wheelers, or bikes as they are popularly called, are the answer to most individuals’ conveyance woes.
A two-wheeler finds takers of all ages. Though a bike is more popular among the youth even middle-aged men prefer a bike over a car because of its speed and cost-effectiveness, what’s more, even females swear by the scooters which are nowadays available because they facilitate an ease of conveyance.
Buying a two-wheeler requires finance. Even the most basic of the bikes start from Rs.40,000 to Rs.45,000. If you wish for a trendier and a better bike, be prepared to shell out more money. Bikes can even cost up to lakhs of rupees if you look towards the best models or luxury brands. Right from the humble scooty to the flamboyant luxury brand bike, a two-wheeler’s cost can rise up to that of a modest car! Is it affordable for everyone? Here is where two-wheeler loans come into the picture.
A two-wheeler loan finances individuals to purchase a two-wheeler for their personal use with affordable repayment options. By paying an equated monthly instalment, the loan can be gradually paid-off over a specified period which makes acquiring a bike lighter on the pockets. So, whether you are looking to buy that scooty for your everyday travel or a high-end model for flashing it in front of your friends, whatever is your justification of owning a two-wheeler, a two wheeler loan is at your disposal. The whole process is easy, hassle-free and what’s more, affordable. So, let’s delve into the details of a two-wheeler loan to equip you with all the necessary little details so that your whole loan process is smooth and free from any ambiguity.
When you think of availing a two-wheeler loan what comes to your mind? Availing it from a bank, or maybe from a financial institution? Or you simply implore your parents for a two-wheeler escaping from the possibility of a loan? Jokes apart, when it comes to offering two-wheeler loans, there are two institutions or entities who are your lenders and from whom you can avail a two wheeler loan. These entities are as follows:
- Banks – private banks, State-owned banks, commercial banks, scheduled banks or non-scheduled banks, all offer loans in their product portfolio and a two-wheeler loan is one such loan product. Either you are a customer of the bank or not a customer you can avail of a two-wheeler loan from the bank easily if you meet other important criteria as prescribed by the respective bank.
- Non-Banking Financial Companies (NBFCs) – this is not a bank but deals in products which are offered by banks like loans, deposit schemes, etc. Non-Banking Financial Companies (NBFC) are institutions which also deal in two-wheeler loans and Hero Moto Corp. is one such NBFC which is a leader in the two wheeler loan market.
You can approach either your own bank in which you hold an account, another bank (if the rates are lower) or a Non-Banking Financial Company to avail of the loan.
Banks and financial institutions (Non-Banking Financial Companies) offer two broad types if two-wheeler loans. These variants are differentiated on the requirement of a security for availing the loan and the variants are as follows:
- Secured two-wheeler loans – secured loans are those loans which require pledging of a security against the liability of the loan. The borrower is required to pledge any asset which he owns and which has an equivalent value to that of the loan to the bank or the financial institution as collateral. Against this collateral, the bank or the financial institution issues the loan. The advantage of this type of loan is that the loan is available very easily as a collateral reduces the risk of default on part of the borrower. This reason also involves lower rates of interests than compared to loans offered without a security. The main drawback of these loans is that in the event of a default, the borrower risks losing out the ownership of the asset which was pledged to the bank as collateral.
- Unsecured two-wheeler loans – a complete opposite to secured two-wheeler loans, unsecured loans do not require pledging of the asset as collateral. One can simply avail the loan if other basic eligibility criteria are followed. For those borrowers who do not have any asset to pledge as a security, unsecured loans seem an ideal solution. However, these loans are comparatively dearer than secured loans as the bank undertakes the risk of default on the part of the borrower.
Every two-wheeler loan, whether availed from a bank or from a financial institution, have certain aspects which are universally applicable. These aspects form the feature of every two-wheeler loan and it is mandatory that you understand these features so that you are abreast with all the technical jargon which your loan might throw your way. Here they are:
- Margin – a very common word which springs up whenever you study the features of a bike loan is the margin or finance or simply the margin. Banks or NBFCs do not offer the total value of the bike you are intending to buy as loan. a specific margin is retained and the remainder is paid. You are required to foot that margin from your pocket which is generally called the down-payment on your two-wheeler. Usually, lenders allow loans up to 90% of the actual value of the bike and 10% is the margin money. This ratio of margin of finance might vary between different lenders.
- Repayments – the loan allowed is repayable over a specified tenure by way of Equated Monthly Instalments which are also called EMIs in short. These EMIs or instalments are uniform throughout the repayment tenure and contain a portion of the principal and a portion of the interest rate payable on the loan.
- Loan tenure – to make it affordable to the borrowers, banks and other financial institutions allow a repayment tenure which usually ranges from a period of 12 months to a period of 48 months or, stated simply, from one year to four years. The borrower can choose any tenure that suits his financial planning process.
- Loans offered in tie-ups with dealers – to facilitate the whole loan process, lenders often enter into tie-up arrangement with two-wheeler dealers and allow them to bundle the loan into the product features. It becomes easier for the customer who is buying the two-wheeler from the dealer to also avail financing option from the same spot without having to go to a bank or other institution separately. Moreover, loans offered by dealers also come cheap and customers can negotiate the rate and add other offers with the whole deal.
- Eligibility criteria – all financers whether they are banks or non-banking financial companies have a pre-determined list of eligibility criteria. Borrowers who fulfill all the aspects of such list of criteria can only avail the loan. These criterions include age limits, income, occupation, etc.
- No prepayment charges – it often happens that at times when we have surplus cash we intend to settle our liabilities. However, certain loans impose a penalty charge when the loan is paid off in full before the specified tenure. In case of two-wheeler loans, this prepayment facility is available and that too free of cost. One can pay off his loan liability even before tenure (called foreclosure of the loan) easily without paying any additional charges.
- Comprehensive financing – the amount of loan offered not only covers the cost of the bike, it also covers the cost of the insurance on the bike, the cost of accessories and also the registration cost of your vehicle. It is very beneficial for the customers who can easily opt for additional security measures and install safety mechanisms on their bike. At the time of buying the compulsory bike insurance cover, such safety mechanisms would benefit the policyholder in the form of lower premiums.
So, these were the rudimentary features of any average two-wheeler loan which you would find in all loan products available in the market today.
After knowing the important loan features, you should also know that financial institutions do not offer loans to all and sundry. Loans are only offered to individuals who have the capacity to repay the loan on time so that the lenders do not suffer any default contingency. As such some basic eligibility criteria are laid down by the lenders and individuals fulfilling the prescribed criteria can only apply for the loan. Following are some of the common criteria required for acquiring a two-wheeler loan:
- Age – since only an individual above 18 years of age can enter into a contract, age plays an important criterion. The minimum applicant age ranges from 18 to 21 years keeping in mind the fact that even students might opt for the loan for their college commute.
- Income potential – the repayment capacity of the individual who applies for the loan is important to ensure repayment. As such, borrowers who earn a minimum level of income are eligible for the loan. Such borrowers can be salaried or self-employed but their incomes should be above the minimum qualifying limit.
- Domiciliary status – two-wheeler loans are usually issued to resident Indians. So, individuals who are a citizen of India can apply for the loan.
- Employment history – stability in the employment of the individual is also assessed and borrowers who have been actively earning for the past couple of years qualify to avail a two-wheeler loan.
- Credit score – this feature comes into effect for individuals who have also availed of other credit facilities. The credit score of borrowers show their repayment capacity and is hence given importance in determining the eligibility of the borrower.
If the potential borrower fulfills all the above prescribed eligibility criteria laid down by the lending institution, he or she becomes eligible to apply for the loan. If the borrower is eligible for loan application the important documents which should be attached with the loan application form are required. If one does not know such documents, it becomes harrowing to smoothly apply and then successfully avail of the two-wheeler loan. So, let’s take a look at the important documents which should be kept handy and submitted on loan application:
- A proof of your identity or ID Proof – various documents qualify as Identity Proofs which are listed below. Any one from the below-mentioned list can be submitted in this regard:
- Driving License
- Aadhar Card
- Voter’s ID Card
- PAN Card
- A proof of the borrower’s residential address or the Address Proof – again many documents can act as an address proofs and any one can be submitted as per ease and availability. Two types of residential proofs are required. One is the proof of current address while the other is the proof of your permanent address. If your permanent and current addresses are the same, a single proof stating the same can be submitted. In other cases, two different address proofs are required one each for the permanent address and the current address.
- A proof of your employment – to confirm that you are an income-earning individual and also to ascertain the stability and income-generating potential of your employment, your employment proof would be required. If you are a salaried employee your Salary Slips, employment or offer letter, Form 16, bank statements, etc. are required. If you are self-employed individual, the proof of your business, IT returns of your business, bank statements of your business account, etc. would be required.
- Photographs – you would also have to submit your recent colored passport-size photographs which are used on loan application forms and also for your loan records.
Needless to say, being a loan, an interest rate would be applicable on the loan amount and you would have to pay the rate of interest in your loan repayment instalments. This rate of interest is payable on the outstanding balance of your loan and depends on various factors like the amount of loan availed, the tenure of repayment chosen, the model of the two-wheeler selected and the credit history. Usually, bike loan interest rate ranges from 11% to 18.25% per annum. However, the other associated fees and charge structure of your loan is also an important consideration as it involves extra expenses on your end. Here are some common charges which are included in the loan:
- Processing charge – the first and the primary charge is the loan processing charge which is a necessary fee payable at the time of loan application. Even if the loan is rejected, the processing charge paid on application would be forfeited by the lender institution. The processing fee is expressed, usually, as a percentage of the loan amount sought subject to a maximum absolute limit and varies from one lender to another.
- Foreclosure charges – sometimes, we might pay off the loan much before the due date. This prepayment of the loan is called foreclosure and might involve charges for the same. However, two-wheeler loans are simpler in this respect and might not include any foreclosure charges or have very low charges.
- Late payment fee – if you miss any installment due date and are late in making such payments, a penalty would be charged for such late payment.
- Other charges – various other charges might be charged depending on the lender’s practice. Some common charges include administrative charges, charges for issuing a copy of the loan statement, charges for issuing the credit report, etc.
There are two ways in which one can avail a 2 wheeler loan which are:
Online - Since the online trend is very popular, it is no surprise that one can also avail his two-wheeler loan online. The method is simple and fast and can be done from anywhere. What’s more, online loan application also allows the borrower to compare between the available loans in terms of their features and quotes and also use the bike loan calculator to know the potential EMIs. The bike EMI calculator is an effective tool. This EMI calculator for bike lets you know the EMIs you would have to pay. The two wheeler loan EMI calculator lets you alter the EMI through altering the loan amount. The two wheeler loan calculator is, thus, a dynamic tool and is very helpful.
Offline – availing loans offline means visiting the premises of banks and other financial institutions who are offering the loan and completing the loan formality. Though most conservative individuals seek the offline route, the feature of comparison between the available choices and the bike loan EMI calculator are not available which is bad for the borrower.
So, now you know all you need to know about a 2 wheeler loan in India. So, the next time you are investing in a two-wheeler, know the details of the loan which you might be required to resort to.