When it comes to high-value purchases, we often rely on external credit. A classic example is buying big-ticket items using credit cards. Similarly, while buying a two-wheeler, most Indians – around 75% – fall back on two-wheeler loans. This allows potential bike owners to purchase their desired models without dipping into their cash reserves, which can lead to a cash crunch. Two-wheelers often come with hefty price tags; these can cost anywhere between ₹50,000 and ₹20 Lakhs or more, depending on the model and the make. By availing a two-wheeler loan, you won’t have to worry about accumulating the required funds; you can depend on the bike loan amount to finance the purchase. However, you must ensure that you don’t accept terms that can put you in a financial bind.
Two-wheeler loans and interest rates
Typically, two-wheeler loans are secured loans, and the vehicle being purchased is used as security. Thus, the onus is on the borrower to pay the monthly EMIs on time. Furthermore, as these are usually secured loans, they are offered at attractive interest rates. In India, you can approach banks, NBFCs and captive financing companies to get bike loans, and the interest rates range from 7.85% to around 28% per annum. Lenders consider several factors while calculating the interest rate, including your credit score and employment status.
The amount you pay every month as EMI varies according to the interest rate. Furthermore, you can either opt for a fixed interest rate, which remains unchanged during the entire loan term, or a floating interest rate, which can fluctuate based on the market. Most borrowers opt for a fixed interest rate, as the variable interest rate can bring unpredictability – something customers tend to avoid.
Repayment period or tenure
Another factor that will influence the amount you pay every month is the repayment period. Also known as the loan term or loan tenure, the repayment period is the duration for which you pay the EMIs, effectively repaying the entire loan amount. Lenders generally offer flexible repayment periods, and most banks provide a loan term ranging from 12 months to 36 months. On the other hand, NBFCs give you up to five years (sometimes, even seven years) to repay the loan amount.
Intuitively, the longer the repayment period, the lower the EMI payment – ergo, less financial burden. However, it is important to strike the right balance between the loan tenure, EMI and interest rate. While the EMI you pay might be less with a longer repayment period, the total amount (with interest) might be substantially more compared to a higher EMI amount with a smaller loan tenure. It is imperative that you do the permutations and combinations before applying for a two-wheeler loan, and choose the best repayment terms.
Importance of a bike EMI calculator
To find the ideal middle ground between the EMI amount, repayment period, and interest rate, you need a tool that can accurately predict and compute the values. For this purpose, lenders and loan aggregators provide you with a bike loan EMI calculator, and you can find free bike EMI calculators online.
Essentially, the fundamental working principle of the application remains the same. You need to know the following factors to use a bike EMI calculator.
- Loan amount: First and foremost, you have to know the amount you wish to borrow. This depends on the on-road price of the two-wheeler. Once you know its price, you can apply for a two-wheeler loan that can cover up to 100% of the cost.
- Interest rate: Next, you need to determine the interest rate. You can talk to different lending entities or find the interest rates at which they offer two-wheeler loans.
- Loan tenure: Finally, you need to zero in on a loan tenure you are comfortable with before applying for the two-wheeler loan.
Certain bike EMI calculators also give you the provision of selecting the down payment amount. This subtracts the amount you might have to pay upfront from the loan amount, providing accurate results. You can change the interest rate and tenure variables to arrive at an EMI amount that is viable, while ensuring that the total amount you repay isn’t substantially more than the loan amount.
Formula to calculate the EMI of a Bike Loan
The bike EMI calculator, in essence, uses the below equation:
EMI = P x R x [(1 + R) N / ((1 + R) N – 1]
Where ‘P’ represents the two-wheeler loan principal amount
‘R’ is the interest rate, and
‘N’ is the tenure in months
Thus, you can manually compute the EMI amount. However, the bike EMI calculator application provides greater convenience and allows you to easily change the variables until you arrive at the best EMI-interest rate-tenure combination. To use a bike EMI calculator online, you can visit Bajaj Markets. Once you find the best loan repayment terms per your repayment capacity, you can apply for a two-wheeler loan online.
Also Read: Know How Home Loan EMI is Calculated: The Factors, The Formula
