Getting a dream bike is always a different experience. The sense of liberation it provides cannot be expressed in words. However, you will need to set aside a significant amount of money to purchase your dream bike. But do not worry if you are on a tight budget; financial institutions now readily offer two-wheeler loans. And in order to get the most out of it, you must understand how to reduce the interest rate on the two-wheeler loan.

1. Improve Your Credit Report

Your credit report sheds light on your financial habits. It has complete information about your previous debts, how you paid your EMIs, how many times you were late with payments, recent loan applications, and much more. Financial institutions typically look for debt default as well as EMI skips information. And if they find any, they may reject your bike loan application or approve funds at a higher interest rate.

2. Increase the Down Payment

You may be wondering how increasing your loan amount by some Rs 7,000 to Rs 10,000 can help you get a lower 2-wheeler loan interest rate. However, the more you invest in your loan, the better your chances of qualifying for a lower interest rate and favourable loan terms. The higher down payment indicates to your lender that you are less likely to default, and in the worst-case scenario (default), the lender may recover the entire debt by auctioning off your two-wheeler.

3. Show Additional Income

With the new term 'Gig Economy' circulating in the market, it is difficult to find someone who does not have a secondary source of income. Secondary income plays a pivotal role in lowering your 2-wheeler loan interest rate. Here is how.

Assume you earn Rs 12,000 per month from your job. The bike you choose to finance has an EMI of Rs 9,000. In this case, if you rely on your primary income for approval, be prepared to be rejected. However, if you make around Rs 12,000 to Rs 15,000 per month as a freelancer and your bank statements reflect that income, getting a bike loan approved on favourable terms is not difficult.

4. Bike Model

Most people overlook the importance of the bike model when applying for a bike loan. Financial institutions examine the bike's make and model as well as its resale market value. Furthermore, if you are purchasing a bike from a manufacturer that does not have a presence in India or a model that was discontinued years ago, the lender may simply reject your application.

Always try to purchase a bike with a high resale value, as this provides a safety net for the lender in the event of a default.

5. Repayment Tenure

If your income is low and you have various debts on your shoulder, the repayment period you specify on the loan application is very important in determining your interest rate. Keep in mind that the payback period has a direct impact on your EMI and interest payable amount.

Check out this table to understand better.

The above table illustrates that if you apply for a Rs 90,000 bike loan and keep your repayment period to 48 months, your lender may easily approve your loan due to the lower EMI. But, before you do so, keep in mind the interest payable. Even if you earn well, extending your loan term will require you to pay more in interest.

6. Employment Status

This is another important factor in determining the 2-wheeler loan interest rate. If you frequently change jobs or businesses, the lender will consider you financially unstable. As a result, your two-wheeler finance application may be rejected. The minimum work experience required for this loan is one year for both self-employed and salaried. In addition, the lender looks at which company you work for. If you work in a small shop, you may be charged a higher interest rate due to job insecurity. Similarly, if you are involved in illegal business, your loan application will be denied.

7. Existing Lender

If you already have a loan with a financial institution, you should try to apply for a bike loan with that lender. Your current lender is well aware of your repayment habits and has all pertinent information and documents on file for you. This not only expedites the disbursement process, but timely EMI allows you to obtain a more affordable loan.

To Conclude

You can get an affordable 2-wheeler loan interest rate if you work on improving your creditworthiness. Furthermore, work on factors that will convince your lender that the default risk on your profile is minimal.