Whether you are a seasoned rider or a novice enthusiast, grabbing that perfect set of wheels is an exhilarating experience. That dream bike may not be cheap though, so perhaps you want to take a bike loan and not pay all the money upfront.
Purchasing the two-wheeler of your choice through a bike loan can be a good idea, but it's important to do your research and make the right decision based on offers, interest rates, loan amount, and two-wheeler loan tenure.
Understanding The Two Wheeler Loan Tenure
The two wheeler loan tenure is the time period within which you must pay the principal bike loan amount and the levied interest rate in equated monthly installments. Typically, the bike loan tenure can stretch up to 48 months.
The two-wheeler loan tenure i s a significant component when you apply for two wheeler loan online , and it’s important to get it right. Here are five things you must know when deciding on a loan tenure:
1. Consider The Overall Interest
Your choice of loan tenure can significantly impact the total interest you pay.
Let's break it down: Imagine you've applied for a bike loan of ₹1,00,000 at a 15% interest rate. Now, you have two tenure options: 2 years or 3 years.
· 2-Year Tenure: If you opt for a 2-year tenure, your monthly installment would be approximately Rs 4,849. Over the course of these 24 months, you'll pay off your loan. The advantage here is that you'll pay less in interest because you're clearing the debt swiftly.
· 3-Year Tenure: On the other hand, if you decide to go for a 3-year tenure, your monthly payments decrease to around Rs 3,467. This might seem enticing as it eases your monthly budget. However, there's a trade-off – you'll be paying interest for an additional year, which results in a higher overall interest cost.
2. Select The Right EMI Option
Equated Monthly Installments (EMIs) are the regular payments you make towards repaying your two wheeler loan. The EMI amount is determined by the loan amount, interest rate, and tenure.
In the example above, we saw how a longer tenure meant lower EMIs but higher interest, while a short tenure meant higher EMIs with lower overall interest. It’s important that you strike the right balance between the EMIs you're comfortable with and the loan tenure.
3. Assess Your Financial Situation
Ultimately, your financial situation is what should decide the EMI you pay. The goal should be to pay the least overall interest possible while ensuring that your EMI payments are not affecting your daily living costs. It’s okay to take a higher loan tenure to ensure that you're within budget.
Consider factors such as your monthly income, financial commitments, existing loans, and future financial goals when making this decision.
4. Calculate the Loan-to-Value (LTV) Ratio
The Loan-to-Value (LTV) ratio is the percentage of the bike's on-road price that the financial institution is willing to finance. Understanding the LTV ratio is crucial when choosing a two wheeler loan tenure. If the lender offers a lower LTV ratio, you might need to make a more substantial down payment, which can potentially impact your financial situation and, in turn, your ability to choose a shorter tenure.
5. Summing Up: Choose The Right Tenure
Now that you have considered the interest rate, calculated EMIs, assessed your financial situation, and understood the LTV ratio, it's time to make the critical decision: short tenure or long tenure?
As already covered, a shorter tenure means higher EMIs but lower overall interest. Whereas a longer tenure means lower EMIs but at a higher interest cost. You can calculate your EMI with two wheeler loan emi calculator
Choosing the right bike loan tenure requires careful consideration of your financial situation, goals, and preferences. We've covered everything you need to know about choosing the right loan tenure for your two-wheeler loan.
Now, there's only one thing left: and put this information to the test. Remember, a well-planned bike loan tenure can lead to a smoother ride, one that you can enjoy on the bike and through better financial planning.