Several individuals dream of owning a bike. However, many can never realise this dream due to the high expenses involved. Since paying its cost upfront is difficult for many, getting a bike loan is an excellent way to fulfil the desire.
Buying a bikes on loan is a popular funding option to purchase your dream motorcycle. Several NBFCs offer these loans based on the applicant’s credit score, eligibility, requirement, and repayment capacity. However, getting bike loan approval is just the beginning. It’s also essential to concentrate on its repayment. Let us understand the repayment terms of bike loans to make informed decisions.
What is a Bike Loan Repayment Tenure?
A two-wheeler loan repayment tenure is the period over which you must repay the principal amount to the lender with interest. NBFCs offer flexible repayment terms of up to 48 months. You can select a tenure according to the EMI amount you can afford to pay each month. The loan tenure, interest rate, and principal amount determine your bike loan EMIs. A bike loan calculator is an efficient tool for estimating the monthly EMIs according to these three variables.
Why Does the Loan Tenure Matter for Your Budget?
Usually, loan applicants use a bike loan calculator to estimate their EMIs. For instance, if you borrow a bike loan of Rs 1 Lakh at a 10% interest rate, you must pay Rs 5000 monthly for 24 months. On the other hand, the EMI amount will be Rs 9,167 for 12 months and Rs 3,611 for 36 months. However, the total loan cost will be Rs 1,10,004 for 24 months, Rs 1,20,000 for 24 months, and Rs 1,29,996 for 36 months. So, the longer the tenure you select, the smaller the loan EMI will be, but the higher the loan cost. You must choose a loan term that lets you repay the loan conveniently without disturbing your monthly budget.
Pros and Cons of a Shorter Loan Tenure
A shorter tenure reduces the overall loan cost you pay. Moreover, lenders quickly approve loans with shorter terms due to the lower risk involved in such loan plans. Shorter periods also attract lower interest rates and minimal documentation requirements for processing. Overall, a shorter term makes the bike loan process hassle-free, letting you improve your credit score faster. However, a shorter tenure comes with a higher EMI amount. You may need to make significant adjustments in your monthly budget and lifestyle to accommodate the EMIs.
Pros and Cons of a Longer Loan Tenure
The most significant advantage of a longer loan tenure is that it reduces your EMI amount, making the EMIs easily manageable without making substantial changes to your lifestyle. It assures better financial health as you can easily meet the unexpected expenses arising during the loan term. However, a longer tenure increases your total interest outgo, making the bike more expensive than its original cost. If you want to resell the bike before the loan term completion, you must repay the entire loan.
Choosing the Right Tenure
No particular loan tenure is ideal to choose from. The final choice largely depends on your monthly income, debt-to-income (DTI) ratio, and repayment capacity. A shorter tenure leads to higher monthly payments, while a longer term provides financial stability with smaller EMIs. Ideally, it would help if you chose the shortest possible loan term with EMIs you can easily afford to pay each month. Remember to accommodate your financial obligations and leave some room for emergencies. Ask yourself these three crucial questions before choosing a tenure for your bike loan:
How soon do you want to become debt-free?
If you wish to repay the loan quickly, opt for a shorter tenure. However, that would imply bigger EMIs that might put undue pressure on your monthly budget.
How much can you pay each month?
Consider the EMI amount when deciding on a bike loan repayment tenure. Opt for a longer tenure if you want to keep your EMIs affordable. On the other hand, choose a shorter term if you want to reduce your total interest outgo.
What is the applicable loan interest rate?
Since the interest rate widely varies between lending institutions according to your credit profile, compare loan offers and opt for one with the lowest interest rate. Also, consider other expenses, including the processing fees and additional charges. Finalise a loan plan that best fits your repayment capacity and financial requirement.
Practical Tips for Easy EMI Repayment
When you apply for a bike loan, you receive a loan offer that contains details about your EMIs and repayment terms. You must pay your EMIs promptly to repay the loan on time. Here are a few practical tips to repay the loan successfully:
- Choose a loan tenure with EMIs suitable to your repayment capacity. The EMI amount depends on your down payment, principal amount, interest rate, and loan tenure. Once you find a loan plan with the lowest interest rate, use a bike loan calculator to choose a term with budget-friendly EMIs.
- Although a bike loan has a fixed tenure, you may pre-pay the loan from surplus funds. It allows repayment before the term end, and you become debt-free sooner. However, check the lender’s prepayment charges to ensure it benefits you as a borrower.
- Set up an auto-payment facility to ensure prompt EMI payments. Timely repayment without missing EMIs helps build credit scores and saves money on penalties and late payment interest.
- Before choosing a loan plan, research to get the most favourable loan terms and conditions. A difference of even a small percentage point may reduce your loan burden and the interest cost.
- Increase your monthly EMIs as your income increases. It reduces the outstanding balance and helps you repay the loan faster.
Purchasing bikes on loan makes your daily commute comfortable. Fully understanding the repayment terms and conditions lets you borrow what you can easily repay with minimal documentation. Repaying your dues on time makes you a responsible borrower and improves your credit score.