Financing your next motorcycle might not be as easy as the banks make it look like to you. Even though the market is flooding today with thousands of models, it is actually the impetus provided by Bike financing institutions which has made the middle class of India to dream of these beauties on two wheels.
However, there are some restrictions. With most financiers today offering interest rates between 10.75 to 12.50 per cent, it would augur well to remember that these finance rates are flexible within a certain percentage and in most of the cases, your skill set that must include bargaining will help you lower the rates. Most of the banks also give you benefits depending on your history with them, which could be in the form of a credit card, an account with the bank or even a loan that you had taken previously. However, interest rates on used Bikes are certainly higher by up to as much or less as one to three per cent depending on the financier. Rarer as those who finance the imported motorcycles, and that too bonded ones only.
To understand the world of Bike finance well, we need to understand a few terms. A loan is a credit facility extended by a Bank to a borrower. It is repaid in installments over a period of time which can be called 'the loan tenure'
Under a typical finance (loan) scheme, the different types of finances are
?The most common scheme to be seen. The financed amount offered is a percentage of the invoiced value of the Bike. The amount financed ranges from 70 per cent to 90 per cent of the value of the Bike in the invoice. Certain factors like credit evaluation of the applicant, eligibility criteria and the credit policy of the Bank decide this figure. The amount that is remained has to be paid by the customer and is known as down payment. Interest is calculated on the amount of money financed. The customer repays the loan in the form of EMIs (Equated Monthly Installments) at the end of each month. These are collected by the financier through post-dated cheques before the disbursal of the loan.
Under this scheme, the customer pays the down payment and an Equated Monthly Installment at the beginning of the loan. The remaining EMIs are paid at the start of every subsequent month through post-dated cheques.
Security Deposit Scheme: Under this scheme, a customer gets 100 per cent of the value of the motorcycle mentioned in the invoice
Bullet Repayment Scheme: If you are an upwardly mobile executive in a world-class firm who hopes to receive a significant amount as bonus at the end of the year, you better pay attention to this one. In this scheme, the customer pays low installments all throughout the year and towards the end of it, he pays an incremental or bonus amount.
Balloon Payment Scheme: This loan package is structured in such a way that for a fixed period you pay a lower sum as installments and at the end of it, you pay a lump sum amount. The Bank or the financier will fund anything from 50 to 90 per cent of the invoice value based on your credit evaluation. The tenure of the scheme can range from two years to five years.
Not everything is hunky-dory though. What most Banks do not say upfront, is that they charge a two to three per cent as the foreclosure charge on early payment. These days however, some nationalised Banks are letting go of these charges.
Some tips on buying your dream wheels
Do you homework carefully before you go ahead with the idea of financing your Bike. While there are many more schemes going around in the market, it actually pays to sweat a little and shop around and see what competitor Banks are offering. Don’t be put off by extra paperwork; it could be worth your effort. According to our experience, nationalised banks give a better deal. For example, state banks finance upto 85 per cent of the on-road price of the Bike, which private banks will not be able to provide. Also if you get hold of a large chunk of money and want to prepay your loan, state banks charge no pre-payment penalty unlike private banks, which can sometimes charge up to 4 per cent of the outstanding loan principle amount.
To get a Bike loan successfully, for the tenure and down payment you want, it is imperative that you keep a track of your what is known as ‘CIBIL’ score. CIBIL stands for Credit Information Bureau India Limited, and is basically a repository of information which has been pooled in by all banks and lending institutions operating in India. Presently this is a database with size of over 170 million consumers' records and 6.5 million company records contributed by over 500 members. Any individual who applies for a loan will be first checked with CIBIL, so make sure that you have been regularly repaying your other loans and your credit card bills. If you want to understand what your credit rating is, simply go onto the CIBIL site and order your credit rating score.
Sometimes, it is worth taking a loan from the same bank where you have your main savings account. In other cases, the bank where your main salary gets credited is also a good option as banks always like to have some sort of security when they give you a loan. It can also let you have 0.5 per cent off the interest rate when you take a loan from the same bank you have a relationship with – other benefits might also arrive.
Whichever option you go for and no matter what loan you avail from which bank, keep your credit rating clean by ensuring you repay the loan. Long repayment tenures will surely lure you at first, but people do get tired of paying EMIs!
The Bike finance market is always buzzing. It does not need one to be a rocket scientist to get a loan and then repay it over next few years. A sluggish economy with occasional boom in Bike sales means that the customer is now in a shape better than ever before to negotiate a good deal. A discount of upto five per cent of the value of the Bike can be negotiated for those who are so inclined. Anyhow, there is price you need to pay for those dreams to come true!