Since your bike loan interest rate defines how easily you can repay, paying attention to it can help you have a stress-free experience. There’s more to getting a lower rate than negotiating, so have a look at the factors that affect it.
10 Factors That Affect the Interest Rate of Your Bike Loan
Interest rates depend on your eligibility as well as other factors outside your control. To give yourself the best chance to secure affordable rates, check them below:
- Credit History and Score
Your past behaviour and experience with credit help lenders decide:
- Your loan’s interest rate
- Your final loan amount
So, they check your credit report and score when you receive your bike loan application. A higher score means:
- You are responsible with credit
- You have repaid loans on time in the past
With a score of 700-750 or more, you can get a lower rate of interest and also negotiate for better interest rates.
- Age and Area of Residence
Eligibility terms like how old you are and where you live also affect your rate of interest in these ways:
- A higher age means your earning years are less, and you may get a higher rate of interest from lenders
- A lower range means that you have a lengthy career ahead, which means you may get a more competitive interest rate
- Living in a Tier-I city can result in a higher interest rate as your living expenses are more compared to a Tier-III
- Popularity and Model of the Bike
Your new bike is the security for your bike loan, and the model you plan to purchase affects the rate you get. Popular models are likely to get you lower rates like the:
- Yamaha MT
- Royal Enfield Classic
- Hero Splendor Plus
This is because they are easier to sell, which makes it easier for the lender to protect their interests in case of a default.
- Income and Employment Type
Lenders assess your income to check your ability to repay, so:
- Your monthly salary will thus directly affect the interest rate
- With a steady job, you are more likely to get lower rates
- If your income is not consistent, as a business owner or a freelancer, you are likely to get a higher rate
- Down Payment and Amount
How much you pay out of pocket and the loan amount you apply for also affects the rates in this way:
- A higher loan amount results in a higher rate of interest as it increases the lender’s risk
- A lower loan amount decreases this risk so you can get a lower rate of interest
- A higher down payment leads to a lower loan amount and results in a lower rate and vice versa
- Relationship With The Lender
Establishing a history with your future lender can help you get lower rates. For instance:
- Say you apply for a bike loan with a bank you already have an account with
- The lender is already aware of your finances and trusts you to repay on time
- This can bring down your rate of interest
- Reduce Your Debts
Lenders also check your existing obligations when deciding your rate of interest. If you already have a home or an education loan, you may find it hard to add bike loan EMIs to your obligations. The best way to get a lower rate is to repay your other loans before you apply for a bike loan.
- Tenor of Your Loan
By choosing a longer repayment duration, you can lower your loan’s monthly instalment amount. Since the overall time of repayment is higher, the lender’s risk increases. Thus, it can increase your loan’s interest rate. Choose a shorter timeline to get a better rate on your bike loan.
- Decide on the Type of Rate
Here’s how the rate of rate affects your interest:
- A fixed rate is usually higher than a floating rate
- A floating rate changes as per the lender’s internal policy and the RBI’s lending rate
- This means it can be higher or lower depending on the period of time
- Since a fixed rate stays the same, lenders charge higher rates to cover their risk
- Compare Lenders
Getting the lowest rate is easier when you don’t go for the first offer you receive. Compare lenders before applying for your loan, as rates differ. This is easier to do online on a platform like Bajaj Markets, which is a financial services marketplace that offers 3 different bike loans.
The two-wheeler loan interest rate on Bajaj Markets starts from 0.99% per annum, and you can easily compare the rates, loan tenors, and amounts on one platform. Before proceeding, make sure you also check the processing fees and other charges across lenders. This will ensure you get the best bike loan deal for yourself.