What are the component that decide my two wheeler loan interest rate
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What are the component that decide my two wheeler loan interest rate

What are the component that decide my two wheeler loan interest rate

In the previous financial year of 2018-19, India had an all-time high sales record of around 21 million motorcycles. The reasons for the popularity of two-wheelers are simple, they are highly economical and provide an ease of commuting. One of the drivers behind the popularity of two-wheelers in India is the easy availability of two-wheeler finance.

There are various lenders offering two wheeler finance. However, bike loan interest rate is critical as it plays a significant role in determining the EMI which the borrower needs to pay. If the two-wheeler loan interest rate is competitive, then the EMI turns out to be lower.

Here some of the factors affecting the 2 wheeler interest rates:

  • Type of EMI calculation: EMI calculation is different for fixed interest loans and reducing balance loans. The interest rate directly depends on the principal amount when it comes to fixed interest loans. The two-wheeler loan interest rates may be lower in the case of fixed interest loans.

  • Credit Score: To have the upper hand in getting loans, it is advisable to maintain a decent credit/CIBIL score. This factor shows the borrower’s creditworthiness – ability to pay back loans in time.

  • Tenure: The period for a loan repayment varies from lender to lender, but usually, the lenders offering short tenure have a high rate of interest, and as tenure increases, the interest rate goes down. The tenure range usually varies between 12 to 60 months

  • Type of Employment: This factor is usually taken into consideration to look at an individual’s job security. Basically, having a full-time job with a steady income source helps in getting loan approvals more smoothly.

  • Age: This factor is, in a way, related to tenure. As one gets older, the repayment capacity gets lower, and hence, the interest rates are higher for elderly people.

  • Current Income: Having a steady income and sufficient income is essential for getting loans. Lenders decide the bike’s rate of interest, based upon the borrower’s income as this creates an assurance of repayment.

  • Repayment Schedule: This factor shows that the more significant amount of the loan and the longer the repayment period, the higher the proportion of interest we pay in each monthly instalment. Therefore, having shorter periods and lesser instalments is usually advisable.

  • Existing Liabilities: Lenders do take a look at the financial history of the borrowers. If there aren’t any discrepancies, they offer interest rates that are suitable for the borrower.

  • Existing Relation with Lender: Having a good financial relationship with a lender increases the credibility and trust for loan repayments.

Place of Work: An individual’s place of work is also a factor that affects the loan process and in determining the interest rate. If the borrower is working with a credible organisation then she is likely to receive favourable interest rates.

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