The coronavirus pandemic has changed the way people commute. Previously, most people relied on public transportation or cabs to get to work or other locations in the city. But with safety as the top priority, people are shifting to personal vehicles, particularly two-wheelers, for mobility. Given the two-wheeler' popularity, many financial institutions have stepped forward to provide bike loans. Here is what you must learn about this loan product.

Factors affecting two-wheeler loan approval

Your bike loan approval is reliant upon several factors. These are –

1. Credit Score

Your credit score, or more specifically, your credit report, is critical in determining your bike loan eligibility. Financial institutions do not consider applicants who have a low credit score or several negative marks on their credit reports. They look at the number of loan applications you have recently submitted (hard enquiries), previous cases of the loan settlement, skipped EMIs, and a few other things. 

If you have a credit card, avoid using more than 30% of the total limit to keep your credit score in good shape.

2. Income

Loan for two-wheelers is easily available to low-income groups. The reason is the hypothecation of the bike with the lender until the borrowing amount with interest is paid in full. However, there is a catch that you should be aware of. Although your low income ensured loan approval, it did not guarantee loan disbursement at a lower interest rate.

A higher income gives the lender the impression that you will be able to manage your EMIs without difficulty. You can use the bike EMI calculator to determine the affordability of your loan. Choose a combination of variables such as repayment term and loan amount until you reach the desired EMI.

3. Debt-to-income ratio

Even if you have a higher income, your lender may still refuse you a loan. The higher debt-to-income (DTI) ratio is to blame. DTI basically represents the total amount from your monthly income that goes towards debt repayment. You can calculate this ratio by using the following formula.

DTI = (Total Monthly EMI) ÷ (Gross Monthly Income)

If your DTI exceeds 50, you will be approved for a loan, but at a much higher interest rate. As a result, the recommendation here is to first pay off a few of your debts before proceeding with your bike loan application.

4. Age

Age and your earning potential go in tandem with each other. If you are under the age of 18, you will not be earning anything and will most likely be reliant on your parents for pocket money. Similarly, if you are over 60, you may have retired from your job and have no other source of income. In both cases, the lender is unlikely to approve you for a loan.

5. Bike model

The bike model provides an additional security cushion to the lender in the event of default. If you are purchasing a bike that has poor resale value or are buying a discontinued model, you are unlikely to get loan approval. 

On the other hand, if you buy a bike that is in great demand, the lender will sanction a loan for a two-wheeler at a lower interest rate. 

How to apply for a loan for a two-wheeler?

You can finance your bike online or offline by following a few simple steps. The steps involved in the online process are as follows:

Research

The two-wheeler market provides a diverse range of options. Depending on your needs, you can choose an entry-level commuter bike, a sports bike, or an off-road bike. Always consider the maintenance costs when researching your options.

Look for offers

Once you have decided on your dream bike, visit dealerships to see what deals are currently available. If you want to buy a bike during the festive season, you may be able to get it for a slightly lower price, or the dealership may offer you additional benefits such as an extended warranty, free insurance, or complementary accessories.

Explore lender

Next, use the internet to compare different two-wheeler lenders. Examine their minimum eligibility criteria, documentation process, maximum loan amount, and interest rate. You can check the details on the lenders' websites or go through a two-wheeler loan aggregator site to get a complete listing of all the lenders' offerings on a single page.

Apply

Once you are done with the above steps, submit your loan application online or offline. If you want to apply online on the website, simply navigate to the loan for the two-wheeler section, and click on the 'Apply for Loan' option. Next, fill out the loan application form by providing information such as your name, address, dealership information, and a few others. Finally, upload your KYC documents and click the 'Apply' button.

If your information meets the lender's minimum requirements, the funds will be transferred to the dealership account.

To conclude

A two-wheeler loan can help you finance your dream bike, regardless of the make or model. You only need to be cautious of the factors that influence your bike loan approval. Also, ensure that you are following the steps outlined above for submitting a bike loan application.

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