The Basics of Bike Finance

India's working class expends a significant part of their income and time for traveling to and fro from work. As per a recent research report, on average, an individual would spend around 6% of his/her income on daily work related travel. In 2008, the average time spent by people traveling to or returning from work was over 45 minutes. This number has only increased since then. That's where a two-wheeler can be a godsend. Commuting on a bike or scooter can help significantly reduce the time involved; which implies that you can spend a more time with your family. In fact, if you work in sales or marketing, a two-wheeler would enable you to visit more clients, and provide a chance to better your earning potential.

While buying a two-wheeler makes a whole lot of sense in terms of saving time and money, people are often confused whether to buy it outright, or go for financing?

Common wisdom suggests that buying anything outright through a single, one-time payment is not only hassle-free; it's also the cheapest option in terms of overall pricing. Additionally, you don't have to worry about paperwork, interest rates, or anything of that sort. However, a few simple steps and you could actually benefit through financing, especially in the long term, as there are a few very valid tangible benefits:
 

1. A two wheeler loan is a relatively smaller amount loan, making it easier to pay-off and give a boost to your credit worthiness, more so if you've never taken any loan before. These loans are easier to get, repay and help build a positive financial history (only if you pay all your EMI's on time).  Thereby making you a little more attractive for banks and financiers, in case you plan to take a bigger loan in the future for purchasing a car/ home or for your business.
    
2. Taking a loan inadvertently encourages you to manage your finances better. Even though you'll not be making a single large payment as you'll be paying your monthly EMI's. The fact that there's a fixed monthly obligation, however small it might be. Makes you more careful and prudent while spending money.
    
3. The financing option also opens up a wider range of two wheelers (motorcycles & scooters) from different price segments to choose from. You can even buy a fancier pair of wheels as the monthly EMI differential would not be very high. An outright purchase has a fixed budget, and it may limit your choices, but financing allows you to stretch and evaluate from a wider range

The Usual Features of a Two-Wheeler Loan

Getting a two-wheeler loan is similar to getting any other loan for any other product. You need to fulfill the documentation, age (usually adults above 18), and required income criteria. A few things to keep in mind before applying:

1. You need identity and address proof, such as an Aadhaar card, passport, PAN card, etc. and valid income proofs for the past six months. Most financial institutions approve a two-wheeler loan within 2 business days, which makes the process quick and hassle-free.
2. The loan is available for salaried as well as self-employed individuals, with multiple repayment options. You need to be a salaried employee for at least 6 months, or should be running your own business for at least one year.
3. Two-wheeler loans come with flexible repayment tenures. In fact, you can repay them in as little as 6 months.
4. There are Non-Banking Finance Companies operating in this segment, such as Hero FinCorp, which offer great service, attractive interest rates and flexible repayment options.

Also Read: 7 Reasons Why Hero FinCorp Two-Wheeler Loan is Perfect for Your Hero Bike

Things to Know Before Getting your Two-Wheeler Loan

Hypothecation

Two-wheeler loans are secured loans, i.e. the two wheeler being purchased is hypothecated in the name of the Finance Company. In case you fail to repay your EMI's then in that case they shall have the right to repossess the vehicle and recover their costs.
 

Duration of the loan

The loan duration can be as short as 6 months. The term period of a loan does not affect the interest rate. However, it does affect your monthly EMI payments. Thus, for shorter periods, you will be paying a higher amount each month. However, with longer periods, you will need to pay more overall for the exact same product. When deciding on the duration of a loan, do take into account your regular living expenses. For example, if your monthly expenses are INR 15,000 and you have a salary of INR 30,000. That leaves you with Rs 15,000 for savings and making EMI payments. Ideally, you should keep the EMIs at INR 10,000 or lower. That way, you'll be able to save some amount for emergencies as well.
 

Beware of attractive super low interest rates 

Many times, lenders will advertise super-attractive two-wheeler loan rates. However, that does not imply you will get the exact offer. Lenders have an obligation to offer the advertised rate to only 51% of their customers. Read your loan offer carefully before you sign on the dotted line.
More importantly though, when you are looking to purchase a bike on EMI, do not settle for what the dealer offers. Shop around and look for the best offer that you can get. We recommend that you choose a reputed lender who has robust processes and can get you the loan in a quick, easy and transparent manner.
 
Also Read: Top 5 Aspects to Consider before Taking a Two Wheeler loan
 

Factors that Impact Two-Wheeler Loan Interest Rate

 
Your two-wheeler loan interest rate is influenced by anything that has to do with your repayment capacity. Here are some of the factors explained in detail:

Amount of the Loan

The higher the amount of the two-wheeler loan, the higher will be the interest rate. The reason is that when the loan amount is substantial, lenders are more invested in bike finance, increasing their lending risk. In this case, even if the lender auctions off your bike when you default, they may be unable to recover the outstanding debt because the bike's value depreciates over time.
 
Thus, you must choose a lower loan amount in order to get an affordable bike loan.
 

Credit Score

In case you believe that you can obtain a bike loan with a poor credit score, you are wrong. Credit scores and credit reports are two interconnected factors that lenders use to determine your repayment capacity. The credit rating agency sends your credit report to the lender, which includes information on previous defaults, skipped EMIs, hard inquiries, and a few other things. Negative remarks on the credit report contribute to a low credit score, and the bike financer will either reject your application or charge a higher interest rate for the loan.
 

Annual Income

You can apply for a two-wheeler loan even if your income is average. The reason is that this is secured loan in which your bike is hypothecated with the lender until you clear the entire debt. However, with a low income, you will not be sanctioned the loan at a low interest rate. You must have a higher or steady income from secondary sources in order to get a more affordable bike finance rate.
 
Apart from income, your employment status is an important consideration for lenders. People who work in public sector units (PSUs) and multinational corporations (MNCs) are more likely to get a two-wheeler loan at a lower interest rate than those who work in start-ups or small businesses. Working for a more credible employer ensures that your salary is credited on time and that you can manage your debt effectively.
 

Debt-to-Income Ratio

The amount of income you have at your disposal after paying the EMIs for your existing debts is what the debt-to-income (DTI) ratio informs your lender. Your bike loan application will be denied if your DTI is less than 40 and other factors are unsatisfactory. If your DTI is slightly below 40, but your other parameters are sound, you may be able to secure a loan at a higher interest rate.
 
You can use the following formula to calculate this ratio.
 
DTI = Existing Debt EMIs ÷ Gross Monthly Income
 

How to Finance a Bike? 

We have used the example of the Hero FinCorp bike loan application online to provide you with a better understanding of the bike finance process. The steps are as follows:
 

• Go to Hero FinCorp's official website and navigate to the bike loan product page.

• Click on the 'Apply for a Loan' tab.

• Share your basic information and choose the desired Hero MotoCorp dealership in your area. 

• Tick the checkbox and click on the submit button. 

 
If your profile meets Hero FinCorp qualifying criteria, you will receive a call from their executive to complete the further process. Once the loan is approved, you can take your new bike home, and the funds will be deposited directly into the dealership's account.
 
If you would like to know more about bike finance or the application process or anything else related to two-wheeler loans. Please feel free to drop us a line or leave your comments below!
 

Frequently Asked Questions

Can I check my bike loan status through mobile apps?

Yes, many banks and financial institutions offer mobile apps that allow you to check your bike loan status. Download the app, log in with your credentials, and access the loan section to view status updates.

Disclaimer: This post was first published on 17th September 2016 and has been updated for the latest information, freshness, and accuracy.