Two-wheeler sales are picking up post the pandemic. But in two-wheeler transactions, credit participation is relatively low as compared to four-wheelers. Should you finance it or should you pay the entire price upfront?
Sumit Chhazed, the co-founder & CEO of OTO—the two-wheeler financing start-up—told FE that insufficient funds shouldn’t get in the way of owning a two-wheeler, as there are numerous NBFCs and banks ready to extend two-wheeler loans. But rates and services offered are different. So, how to choose the right lender for your two-wheeler?
Chhazed said one must carefully run through the eligibility criteria. The most commonly accepted requirements are residence (stable address and must be a citizen of the country for at least a year), age (must be between 21-60 years old, although some lenders may grant loans to the age group of 18-20 if a co-applicant is available), and Experian score of 600 and 650 in case of NIP (no income proof).
Lenders may verify your income and employment status while offering a loan. “They are more likely to grant a loan if you have a minimum salary of Rs 30,000 and the loan is granted only on the submission of three-month payslip in case of salaried individuals and six-month payslip for self-employed,” Chhazed said. “However, there are special cases where those with a salary of Rs 10-12,000 can get Rs 1 lakh loan.”
Banks and NBFCs provide a paperless process and instant loan approval. But the borrower must conduct detailed research with regard to the turnaround time and documents required, and enquire the lender about their loan process before applying for a loan. “Always choose a lender best suited to your requirements,” Chhazed said.
Loan tenure for a two-wheeler may range from 1-3 years. Some lenders may even provide a longer tenure (4-5 years). You can also finish it off in six months, at a higher EMI amount.
The LTV ratio breaks down the amount to be given as equity in the form of a down-payment against the debt. “Many financial institutions provide 90-95% of the value on a bike as LTV. The applicant’s credit profile is considered for this matter. A borrower must always verify the LTV ratio in such a way so as to ensure that there is a proper balance between the down-payment and the amount taken as debt based on your repayment capacity,” Chhazed said.
Rate of interest
Interest rate is determined by the financial institution based on the tenure you pick and the credit worthiness of the individual. “You can expect 8-15% of interest (flat rate) on a two-wheeler,” Chhazed said. “Compare the rates offered by different lenders and choose one that provides the lowest rate of interest.”
Some lenders may provide you a lower rate of interest but might ask you to pay additional charges in the form of processing fees. “Be cautious and go through the fine print of the loan terms and conditions on late fee, processing charges and bounce fee,” Chhazed said.
There are special offers from time to time, especially now that the festive season is starting.
Chhazed added that people often overlook customer service. “Choose a lender who has a proactive customer service department, as you are likely to have queries and would need assistance throughout the loan repayment process,” he said. “Through proper research, you can make your two-wheeler dream a reality.”