Two Wheeler Loan - A Bike or A Scooter

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Two wheeler loan

The owning of a bike or a scooter is a thought that crosses one's mind at some point of time. One may find the time taken to commute from home to office too long. The uncertainty of public transport and lack of night time services may drive one to seek that two wheeler loan. One's son has just reached college and the thought of gifting him a bike on his eighteenth birthday is on one's mind. Whatever be the reason one needs a two wheeler, the demand for two wheeler loans is growing in India and banks are doing their utmost to cater to this need. Attractive financing, slashing of the interest rates and festival discount offers are doing the rounds.

What is a two wheeler loan?

A two wheeler loan can be a secured loan or an unsecured loan. If one opts for a secured loan then a collateral needs to be pledged. A lower rate of interest is charged for a secured loan than for an unsecured loan. In the case of an unsecured loan 10-15% of the value of the two wheeler needs to be made as a down payment to the bank at the time of purchase. A higher rate of interest is charged as this loan is unsecured in nature.

What are the eligibility criteria for obtaining a two wheeler loan?

• A salaried employee needs to have attained a minimum age of 21 years at the time of application of the loan and 60 years at the end of the loan tenor. For a self employed the minimum age should be 21 years and maximum age at the end of the loan tenor should be 65 years.
• The minimum gross income a salaried individual needs to earn must be INR 54000 - INR 84000 per annum for the metro cities, Bangalore and Pune. For other cities the minimum gross income must be INR 40000-42000 per annum.For a self employed person the minimum gross income needs to be INR 72000 per annum.
• One needs to reside in the city for at least a year.
• One needs to have resided for at least a year at his current or given address and possess a phone at his office or residence.
• One needs to have worked for at least a year.

What are the salient features of a two wheeler loan?

• The documents required in order to procure a two wheeler loan are an identity proof such as a copy of the driving license, pan card, passport or even a ration card .Residence proof includes a copy of the passport, telephone or the electricity bill or even the bank passbook.
• Income proof for a salaried employee can be the latest salary slip, the form 16 and the last 6 months bank statement. For a self employed person 2 years income tax returns and the last 6 months bank statement. Profit and loss account as well as the balance sheet may also be required.
• A loan processing charge of 1-2% of the sanctioned loan amount is charged.
• The documentation charges can be 2% of the sanctioned loan amount.
• A down payment of 10-25% of the cost of the two wheeler needs to be made based on the model.
• The term period of the two wheeler loan can be from 1-3 years even extending to 5 years.
• A loan amount of a maximum of a lakh or 90% of the cost of the vehicle may be financed.
• Interest rates range from 10.5-11% per annum depending on the tenure of the loan. A floating rate loan can be of 10.5-11% per annum for tenure up to 3 years and 11.5-12% per annum for tenure beyond 3 years.
• Pre payment charges can range from 5-6% of the principal outstanding between 6-12 months and as low as 3-4% of the principal outstanding for a time period beyond 2 years.

How do festive seasons influence ones two wheeler loan?

In India festive seasons boost the demand for the purchase of two wheelers. The season of Diwali and other major festivals sets the sale of two wheelers on fire and huge profits for their parent Companies .In a downturn or a recession the trend is different and demand needs to be pumped up as observed in recent times. The finance minister recently asked banks to cut interest rates on auto loans. Banks and non banking finance Companies had obliged by cutting the rates for the festive season for a short period of time. Banks have cut interest rates on two wheeler loans by 0.2-1.0% .Many banks have slashed their loan processing fee by half. Certain banks have completely waived off the loan processing fee as well as the documentation charges. Do these festive offers need to be taken with a pinch of salt? Yes, one certainly cannot take up these loans blindfolded .Along with the interest rate cut as well as loan processing fees being waived off taking a look at the other charges such as documentation ,administration, loan clearance as well as valuation charges needs to be done. Before opting for the two wheeler loan one must read the fine print carefully and do all the necessary calculations to be sure of getting the best deal.

How does monsoon play a role in the sale of two wheelers in India?

Good monsoon is a major factor which props up sales of two wheelers in India. Earlier motor cycle and two wheeler Companies focused heavily on urban customers neglecting rural demand. This trend soon changed with two wheeler Companies focusing on the untapped rural base. With a bountiful monsoon and cash in plenty from rich harvests farmers form a huge customer base. Backed by proof of income farmers can easily get a loan sanctioned. Two wheeler Companies realize this and a number of bikes are specifically designed for the rural market. Bikes which are sturdy and tough are designed for the rural customer. Major bike Companies can no longer lose focus on the rural segment with nearly 40% of sales coming from them. With distribution channels being ramped up in the rural areas as well as active service and maintenance support being provided sales in these areas are picking up. With sales in the urban area plagued by high retail inflation and high fuel costs the rural segment is providing timely aid to the two wheeler Companies in India. This props up dealer based two wheeler financing and the banks two wheeler loan segment.

How do tie ups help to finance two wheelers in India?

The tie up between Motor cycle Companies in India and banks promises attractive benefits to the customer and is a win win situation for all the parties involved. The down payment on the two wheeler loan is much lower in case of a tie up. The loan processing is faster, documentation easier and the tenure of repayment is longer. The tie up between banks and motor cycle Companies takes full advantage of the festive seasons. Easy financing with rates as low as 7-8% is offered by motorcycles Companies in tie ups with banks. Motorcycle Companies see huge sales, banks get new customers and the customer is treated to a wide range of two wheeler models at competitive rates of interest on his loan .It can't get better than this.

How do non banking finance Companies help to cater demand for the two wheeler industry in India?

Banks being plagued by high non performing assets are very careful when lending in the two wheeler segment. Borrowers who do not match up to the very high standards set by banks turn to non banking finance Companies to finance their two wheeler purchases. The EMI's are slightly higher but customers do not mind paying the slightly higher amounts which could be a few hundred rupees more a month. Many non banking finance Companies even refund a small percentage of the EMI's paid at the end of the year if the borrower is prompt with the payments. Non banking finance Companies are present where banks do not like to venture mainly the rural areas. These non banking finance Companies focus on areas very close to their branch of operation so that they can provide optimum services.

What are the benefits of taking a two wheeler loan in India?

• Online loan application has helped ease the process of obtaining a two wheeler loan and processing speeds of the loan are very fast.
• Non banking finance Companies cater to a growing segment of customers who have been rejected by the banks because of a lower credit score not matching the banks expectations.
• Two wheeler loans are available in India at very competitive interest rates and easy financing.
• Female customers might get a special discount of 0.5% on interest rates on their two wheeler loans.
• The loan sanctioning process might be as less as 2-3 days.
• No guarantor is required for these kind of loans.

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