Everything you should know before taking a two-wheeler loan

Getting a two-wheeler loan can be a daunting task for many people. With so many lenders offering different loan terms and conditions, it can be hard to know which one is the best for you. In this article, we will discuss everything you need to know about two-wheeler loans, from the eligibility criteria, loan interest rate to the different types of two-wheeler loans available. We will also provide tips on how to make sure you get the best deal and enjoy a hassle-free loan experience.

For those who do not want to pay a large amount from their savings, a two-wheeler loan can be useful. This way, you can buy one of choice at an attractive two-wheeler loan interest rate and repay the amount through equated monthly instalments (EMIs).

Let's take a closer look at the benefits of a two-wheeler loan, the eligibility criteria, documentation and process. 

Benefits of taking a two-wheeler loan

Here are the key benefits of taking a two-wheeler loan:

• A two-wheeler loan will give you the funds to buy the two-wheeler of your choice
• You can get a guarantor or co-applicant for the loan
• You can choose an option with an affordable two-wheeler loan interest rate
• The loan can be paid in a flexible loan repayment period
• The loan can be repaid in affordable EMIs
• By paying EMIs on time, you can build up your credit score

To buy your new two-wheeler, check out IDFC FIRST Bank Two Wheeler Loan and Pre-Owned Two Wheeler Loans.

Also read - Looking to buy a new two-wheeler? Check these top manufacturers in India

Types of two-wheeler loans
 

Depending on whether you pay a security or not, there are two types of two-wheeler loans in India: -

• Secured loan -
  
  

  In this type of two-wheeler loan, you need to submit an asset as collateral to obtain the loan. You can get this loan at a low-interest rate. However, if you fail to repay your loan on time, you will lose the asset that secures the loan.

• Unsecured loan -
  
  

  You need to submit collateral or security to obtain an unsecured two-wheeler loan. Such a loan may require a high down payment and a high rate of interest. Generally, lenders may require you to pay around 30% of the asset amount in cash for an unsecured loan. 

Two-wheeler loan eligibility
 

You need to meet the following two-wheeler loan eligibility criteria to apply: 

• You must be a resident of India
• You must be above 21 years
• If you are between 18 and 21 years, it is mandatory to have a co-applicant

Documentation needed
 

Here are the two-wheeler loan documents you need to submit: 

• A passport-size photograph
• A valid identity or address proof, such as an Aadhaar card, voter’s ID, driving license, or passport 
• The completed loan application form

Things that affect the two-wheeler loan approval
 

You need to consider the following things before applying for a two-wheeler loan:

• The loan amount:
  
  

  If you apply for a high two-wheeler loan amount, the interest rate will also be high. This is because the larger the loan amount, the higher is the risk to the lender. In case you default on your payments, the lender may not recover the outstanding debt even after confiscating the vehicle as the two-wheeler's value will have depreciated.

• Minimum income:
  
  

  You must meet a minimum annual income to qualify for a two-wheeler loan. The income proof shows your ability to repay the loan. While the income eligibility varies from bank to bank, a higher income may fetch you a higher loan amount.

• Credit score:
  
  

  Your credit history and credit score are crucial for obtaining a two-wheeler loan. Your score should be 750 or more to qualify for a two-wheeler loan. If your credit report has payment defaults, unpaid EMIs, or hard queries, the lender may reject your loan request.

• Minimum work experience:
  
  

  Your occupation and work experience will also influence the lender’s decision. You need to have a minimum of six months’ work experience in your current job to get a two-wheeler loan. Besides, if you have a steady job, you are more likely to get approved because it is assumed you can pay off the debt in a timely manner.

• Debt-to-income ratio (DTI):
  
  

  Your debt-to-income ratio is the amount that will remain after you pay the EMIs for your existing loans. Your lender may reject your loan application if your DTI is lower than 40 and other parameters are not met. 

You can calculate your DTI using the following formula -
DTI = Existing loan EMIs / Gross monthly income

There are other crucial aspects of borrowing, including insurance, loan tenure, EMI calculation and more.

​​What does a two-wheeler insurance cover?
 

You should have an insurance policy for your two-wheeler to cover its cost against certain instances. A quality two-wheeler insurance policy will provide the following covers:

• against natural disasters, such as floods, storms, earthquakes, and fires
• against accidents, theft, and terrorist activities
• for cashless repairs at a network garage
• for legal third-party liabilities
• settlement of digital claims
• personal accident cover for the owner for Rs. 15 Lakhs
• possible personal accident cover for pillion rider
• Add-on covers

How does a two-wheeler loan interest rate work?
 

In India, the interest rate for a two-wheeler loan usually ranges from 6.85-28.30% per annum. The interest affects the overall amount you repay for the two-wheeler loan. The amount of payable interest depends on whether you choose a fixed or floating interest rate. 

You can get affordable two-wheeler interest rates starting from 8.5% per annum. 

Tenure
 

While the tenure of a two-wheeler loans in India vary from bank to bank, it is typically between six and 48 months.

How to calculate the EMI?
  

Before applying for a two-wheeler loan, you should calculate your EMI. It will help you understand how to pay off the loan on time. 

You can calculate the EMI using the formula: EMI value = P x R x (1 + R) ^ N / [(1 + R) ^ N - 1] 

Where:

P = Principal loan amount
R = Rate of interest 
N = Loan tenure in months

There is an easier way to calculate the EMI, and that is by using a Two Wheeler Loan EMI Calculator. 

You only have to enter the principal loan amount, the interest rate, and the loan tenure, and the calculator will give an accurate result instantly. 

Fees and charges
 

Here are the fees and charges of IDFC FIRST Bank two-wheeler loans:

For more details, check Two Wheeler Loan Fees & Charges

Also read - How to get the best Two-Wheeler Loan interest rate?

Next step to financing your two-wheeler
 

Instead of hustling every day taking the public transport, you can travel on your own terms by owning a two-wheeler. Before applying for a two-wheeler loan, however, it is important to know about the types of loans available, the eligibility criteria, EMI payments, and insurance among other factors.

You can get an instant loan on KYC with a low down payment and zero processing fee from IDFC FIRST Bank. Furthermore, you can explore our Pre-Owned Two Wheeler Loans if you are interested in purchasing a secondhand two-wheeler vehicle.  

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.