Two-wheelers are the most common mode of transport for average Indians. A considerable share of the population across urban and rural areas use bikes for regular commute to market places, offices, recreational zones, etc. Purchasing a new bike in India is quite easy with the availability of simple bike loans offered by reputed lending institutions against affordable interest rates.

What is Downpayment in Loans?

A lender will sanction the loan as per the borrower’s eligibility. In most cases, the borrower needs to make an upfront payment of a certain amount to purchase the bike.  This is known as downpayment. The lender then sanctions the remaining amount as loan and makes payment to the seller or showroom from where the borrower purchases the bike.

Depending on your financial credibility, your lender may also offer you a two-wheeler loan with zero down payment facility. In addition, there are multiple factors that one must know about making downpayments before applying for a bike loan.

Must-know Facts About Downpayments 

Here are a few facts about downpayments that a potential borrower must be aware of before availing a bike loan:

1) Financial standing of borrower

Borrowers employed at reputed MNCs or government offices are considered to have a stable source of income. Self-employed individuals must showcase business stability and vintage as proof of financial stability. Such financially sound profiles are more likely to enjoy better terms of loans. These borrowers can even get bike loans with zero downpayment facility.

2) Zero downpayment facility

Borrowers with a good financial background and credit history can avail two-wheeler loans with zero downpayment facility. This simply indicates that the entire cost of the vehicle will be financed by the lender and no initial payment needs to be made.

There are several advantages of availing such a loan. The borrower’s finances and cash flow remain unaffected since they do not need to set aside some amount of their income or savings; they can simply plan their EMIs. Additionally, such loans require minimum documentation, and are often flexible regarding loan amount and tenure.

On the flip side, zero downpayment bike loans carry higher risk for lenders. Consequently, the interest rates will inevitably be higher than a regular bike loan.

3) Purchasing price of two-wheeler

The amount of loan to be sanctioned inevitably depends on the cost price of the bike and the amount paid as downpayment. Ideally, downpayment must be made somewhere in the range of 10-30% of the total cost price and the remaining amount to be availed as loan.

A higher downpayment reduces the EMI burden as the principal loan amount decreases. Making a substantial downpayment speaks volumes about your financial stability and thus, lenders may also offer lower interest rates while sanctioning such bike loans.

4) Credit history of borrowers

Credit history is one of the prime factors when it comes to two wheeler loan eligibility. Individuals with sound credit history are considered safe borrowers who have a tendency to repay loans without fail. Such applicants can avail loans from financial institutions against the most favourable terms and conditions.

The credit history of a borrower is determined by the credit score he/she holds. Generally, a credit score around 700 is considered safe for lending and such individuals may be offered lower interest rates, higher loan amounts, and other lucrative terms when they avail a bike loan. 

Both financial stability and credit history of an applicant  improve the chances of availing the maximum loan amount while purchasing a bike. In turn, good credit score and financial standing ensures low downpayment to be made upfront. This makes buying a two-wheeler all the more convenient.

Important Checks to Consider While Making Downpayment

One must keep in mind that making a higher payment upfront reduces the loan liability. This is applicable for all loan amounts, irrespective of the make or model of the bike. Making a larger downpayment reduces the actual loan amount. This, in turn, keeps the total interest outgo in check and also keeps the EMIs affordable. 

Borrowers usually have the flexibility of choosing a suitable repayment tenor. One can use a bike loan EMI calculator to determine the actual EMI amount before applying for a loan. This will reduce chances of defaulting on repayments at any point in future.

The process of applying for a bike loan is fairly easy. You can either avail financing via a two-wheeler dealer or directly from your preferred lender. Certain basic documents including KYC papers, income proof, etc. are mandatory while applying for a bike loan. Also, remember to check the processing fees, tenure, and other associated charges mandated by your preferred lender in order to understand the total cost of the loan. Also, keep an eye for all the two-wheeler loan eligibility criteria laid down by your chosen financial institution to ensure quick and hassle-free processing of the loan application.