A Guide To Two-Wheeler Loan Repayment Process

JE Brand Desk: A bike loan helps you fulfil your goal of purchasing a bike without paying its cost in a lump sum in one go. However, taking a bike loan requires you to be smart about planning repayment. 

After all, defaulting on a loan or missing your EMIs has a lasting negative effect on your credit score. So, consider all variables such as the tenure, amount and bike loan interest rate before you sign the agreement. 

A lot of lenders give you flexibility when it comes to choosing repayment options. These allow you to structure your loan to best align with your finances while helping you save on the interest you owe.

Read on to learn more about the top 4 bike loan repayment options you can choose from. 

Regular EMIs With a Fixed Bike Loan Interest Rate

An EMI or equated monthly instalment is the way you repay your bike loan, in general. Your bike loan EMI is due by a specified date every month. Every EMI you pay includes a portion of the principal amount as well as a portion of the interest amount.

When you choose a fixed interest rate on your bike loan, your EMI amount and the tenure of repayment remain the same all through. This keeps things simple as you know exactly what is due and when.

With a fixed rate of interest, you are reducing the risk of paying a higher EMI when the interest rate increases during the tenure of your two-wheeler loan. However, you also lose out on the benefit of decreasing rates as per the economic climate and the lender’s policies.

A fixed-rate gives you the benefit of being sure about your EMIs all across the duration and keeps the number of EMIs the same. Thus, such a rate is usually higher than a floating interest rate.

Regular EMIs With a Floating Bike Loan Interest Rate

Bike loan interest rate becomes a crucial factor when it comes to your monthly EMI. Your EMI will completely depend on the interest rate at which you are taking a bike loan. Let’s dig deeper to understand the types of interest rates that lenders offer.

Say you choose a floating interest rate for your bike loan. Here, the interest rate fluctuates based on the RBI’s repo rate, monetary policies and economic climate, and the lender’s internal benchmark rates.

This way, you get the benefit of lower rates when the rates drop or pay more as interest when the rates increase. Remember, a floating bike loan interest rate is generally 1% to 2% lower than a fixed interest rate.

Due to this factor, you may prefer choosing a floating interest rate but may be hesitant to do so assuming that your EMIs would constantly fluctuate. However, this is not the case. To make repayment easier, lenders keep your two-wheeler loan EMIs the same.

When you choose a floating rate option, all lenders do is increase or decrease your tenure based on the changes in the rate. So, you will pay the same EMI amount across the duration of the loan. The number of EMIs you pay will simply increase or decrease.

Step-up EMI Option

A step-up EMI option structures your bike loan repayment differently by changing the EMI amount. Here, the EMI amount you pay during the initial loan tenure gradually increases over time.

This is very different from both the fixed and floating interest rate options, which keep the EMI amount the same. With a step-up repayment, you can benefit from paying higher EMIs as your income increases with every progression in your career.

As you can see, this option is best suited for younger applicants, who can choose the EMIs amounts to coincide with salary increments over time. This option gives you flexibility and allows you to repay your bike loan comfortably.

Step-Down EMI Option

Consider this as the reverse of the step-up EMI option. Here, your repayment is structured in a way that you pay higher amounts as your monthly instalments during the initial tenure. As the term of your bike loan progresses, your EMI amounts reduce.

This loan repayment option is ideal for those in the prime of their careers or close to retirement. As time passes during the tenure of the bike loan, the reduced EMI will help you to plan your finances appropriately. This way, you can focus on saving for your life post-retirement.

Other Ways To Repay Your Bike Loan More Affordably

Apart from choosing between these repayment structures, you can take other steps to make repaying your two-wheeler loan EMIs easier on the pocket. Here is a snapshot:

- Choose the Lowest Bike Loan Interest Rate: Your bike loan EMIs are affected by the rate of interest, and by selecting the most affordable rate, you can repay stress-free.

- Increase Your Bike Loan Tenure: By opting for a longer repayment duration, you can reduce your EMIs, so they do not burden your finances. This way, you can repay comfortably without missing out on payments.

- Make a Down Payment That You Can Afford: Rather than going in for a loan amount to cover 100% of your bike’s cost, you can make a down payment. Choose an amount that you are comfortable with and reduce your bike loan amount. This will help you repay with ease as your EMIs will reduce.

- Use a Bike Loan EMI Calculator: To ensure that your two-wheeler loan EMIs fit your budget, make use of the free EMI calculator available online. This tool helps you choose the right EMIs based on the loan amount, bike loan interest rate and tenure.

- Make Part-Prepayments: Using your bonus, surplus funds or income from other sources, you can choose to prepay your bike loan partially. This involves repaying your loan with an amount that is over and above the EMIs that are due. This option reduces your loan principal, which lowers your subsequent EMIs or tenure. This makes repayment more affordable by lowering your overall interest dues.

- Set a Budget to Follow During the Tenure: Another way you can repay hassle-free is to make sure you spend as per a budget during the entire tenure of the loan. Having an emergency corpus also helps you address urgent needs during this time. This way, you can pay your monthly instalments by the due date rather than falling short of funds.

Remember, there is no right or wrong answer to the loan repayment option you choose. It is essential to study the various bike loan repayment options and make the ideal choice based on your financial parameters.

Always remember to negotiate with the lender to bring down the bike loan interest rate. A good credit score and high income help you boost your power of negotiation and may also allow you to get access to a pre-approved bike loan!

(Note: This article is written by the Brand Desk)