Things to Know About Downpayment of a Bike Loan
Two-wheelers are the most common mode of transportation for average Indians. A significant portion of the population in urban and rural areas uses bicycles for regular commuting to marketplaces, offices, recreational areas, etc. Buying a new bicycle in India is quite easy due to the availability of easy bicycle loans offered by reputed lending institutions at affordable prices. interest rates.
What is a down payment on loans?
A lender will sanction the loan based on the eligibility of the borrower. In most cases, the borrower must pay a certain amount in advance to purchase the bicycle. This is known as down payment. The lender then sanctions the remaining amount as a loan and makes the payment to the seller or showroom where the borrower purchases the bike.
Depending on your financial credibility, your lender may also offer you a two-wheeler loan without down payment. Additionally, there are several factors you should know about making down payments before applying for a bike loan.
Must-know facts about down payments
Here are a few facts about down payments that a potential borrower should be aware of before availing a bike loan:
1) Financial capacity of the borrower
Borrowers working at renowned multinationals or government offices are expected to have a stable source of income. Self-employed individuals must present business stability and vintage as evidence of financial stability. Such financially healthy profiles are more likely to receive better loan conditions. These borrowers can even get bike loans without a down payment.
2) Zero deposit facility
Borrowers with good financial background and credit history can avail two-wheeler loans without down payment. This simply indicates that the entire cost of the vehicle is financed by the lender and no initial payment is required.
There are several advantages to using such a loan. The borrower’s finances and cash flow remain unaffected as he does not have to set aside a certain portion of his income or savings; they can easily plan their EMIs. Furthermore, such loans require minimal documentation and are often flexible in terms of loan amount and term.
On the other hand, no down payment bike loans carry a higher risk for lenders. The interest will therefore inevitably be higher than with a regular bicycle loan.
3) Purchase price of two-wheeler
The loan amount to be sanctioned inevitably depends on the cost of the bicycle and the amount paid as a down payment. Ideally, somewhere between 10 and 30% of the total cost should be paid down and the remaining amount used as a loan.
A higher down payment reduces the EMI burden as the principal amount of the loan decreases. Making a substantial down payment speaks volumes about your financial stability and thus lenders can also offer lower interest rates while sanctioning such bike loans.
4) Credit history of borrowers
Credit history is one of the most important factors when it comes to qualifying for a two-wheeler loan. Individuals with a good credit history are considered safe borrowers who tend to repay loans without errors. Such applicants can avail loans from financial institutions on the most favorable terms.
A borrower’s credit history is determined by the credit score he/she has. Generally, a credit score of around 700 is considered safe for lending and such individuals may be offered lower interest rates, higher loan amounts and other lucrative terms if they avail a bike loan.
Both an applicant’s financial stability and credit history improve the chances of availing the maximum loan amount when purchasing a bicycle. A good credit score and financial strength, in turn, means that few down payments are required up front. This makes buying a two-wheeler all the more convenient.
Important checks to consider when making a deposit
Keep in mind that making a higher prepayment lowers the loan obligation. This applies to all loan amounts, regardless of the make or model of bicycle. Making a larger down payment will reduce the actual loan amount. This in turn keeps the overall interest outgo in check and also keeps the EMIs affordable.
Borrowers typically have the flexibility to choose a suitable repayment period. You can use a bike loan EMI calculator to determine the actual EMI amount before applying for a loan. This reduces the chance that you will be unable to pay at some point in the future.
The process of applying for a bicycle loan is quite simple. You can avail financing through a two-wheeler dealer or directly from your favorite lender. Certain basic documents including KYC papers, income proof, etc. are mandatory while applying for a bicycle loan. Also, don’t forget to check the processing fees, mandate and other associated charges imposed by your preferred lender so that you can understand the total cost of the loan. Also, keep an eye on all two-wheeler loan eligibility criteria set by your chosen financial institution, to ensure quick and hassle-free processing of the loan application.
