The necessity of a two-wheeler in day-to-day life doesn’t need an explanation. If you think about its usefulness, it is best to maneuver on busy roads and in crowds. Parking a bike is more manageable than parking a car. A bike can fulfill your day-to-day necessities like running errands or dropping your child off at school. If you are more outdoorsy, adventure-lover, you can go off-roading or on road trips with your bike.
However, not everyone can afford a bike, especially middle-class families. It leads you to finance, which also requires considerable money as a down payment. In these cases, personal two-wheeler loans come to the rescue. You can get your dream bike by repaying the monthly installments, including the principal and interest. You can use a bike EMI calculator to estimate the interest per month.
Banks or other financial institutions offer loans to buy two-wheelers against certain documents. The lenders set a tenure to repay the loan with the evaluated interest. The interest rate depends on the loan term and amount. It could be lessened if you have a good credit score. Your lender decides your EMI amount based on the principal and interest rate. Several bank websites or digital lenders have an integrated tool to calculate the EMIs for a bike loan. Upon selecting your loan amount, interest rate, and tenure period, the tool shows you an estimate of your EMI. With this, you can learn how to calculate EMI in Excel.
Which factors affect the bike loan interest rate?
Bike loans have undoubtedly been a great resort to purchasing your dream bike. A bike loan is a form of unsecured personal loan where the lenders don’t require collateral or a security deposit. Although there is a substantial interest rate involved, with the help of small EMIs, it becomes easier to repay. To avoid paying excessive interest, you must know the factors that impact a bike loan interest beforehand.
As you get the opportunity to purchase your dream bike, it becomes crucial to select the right interest rate. Without peeking into this section, the repayable loan amount could burden you. Everyone has a planned monthly expense; it becomes harder to handle if anything jeopardizes it.
Here are some of the factors that directly affect a bike loan interest rate-
Your Credit Score
Lenders consider a borrower’s credit history one of the most vital conditions for approving a loan. Your eligibility to get a bike loan depends on what your credit history reflects. It is impactful in getting a new loan after checking your current debts and previous due clearance, which reflects in your credit score or CIBIL score. There are chances that your bike loan will be declined if you have a poor credit score. Likewise, a good credit score (from 700 to 750 onwards) can get you faster loan approval and a substantially lower interest rate.
The Source of Income
Another determining factor in your interest rate is your source of income or salary. Although you can apply and get a two-wheeler loan whether you are a salaried person, lenders approve loans faster for a salaried person. That helps you get an affordable interest rate. However, not being salaried doesn’t make you ineligible for a bike loan. You can still show some essential documents, like your income tax return papers and bank statements, to avail of a two-wheeler loan.
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Your residence plays an important role in determining your debt-to-income ratio for a financial Institution. This ratio, in turn, determines the interest rate for your bike loan.
Banks evaluate your income status based on your city of living. For example, a person living in a metro city must have a substantial income than those living in tier-two or tier-three cities.
A borrower’s age also plays a major role in determining their two-wheeler interest rate. If you are nearing retirement, then it is obvious that you won’t be able to repay an outstanding loan with a high-interest rate. This risk factor makes the lenders decide on a higher loan value with an extra interest rate.
How to Manually Calculate a Bike Loan EMI Interest?
Although various bank and finance websites offer a free tool or a bike EMI calculator, you can do it manually too. The benefit of these automated, free tools is that you need to enter the metrics, and they show you the amount. There is no hassle of bringing a pen, paper, or a calculator, and practicing your mathematical skills. But manual calculating gives an accurate result when redoing and undoing certain metrics. You need to know the following components for manual calculation-
- The principal: The principal is the loan amount you originally applied for. Your EMI depends on the principal, the larger the loan amount, the higher the installments.
- Interest Rate: The interest rate is a percentage added to the principal. When repaying the loan amount, you must calculate the sum, i.e., the principal plus the interest rate. Your loan amount will increase significantly with a higher interest rate, mounting your EMIs.
- Loan Tenure: A tenure is a period in which you must repay your loan. A longer loan tenure means a higher interest rate and a lower EMI. It would be best if you decided on a tenure carefully, depending on your ability to repay within the time. In any case, you can apply for an extension of the tenure.
The formula for manually calculating the EMIs is-
EMI = [P x R x (1+R) ^N]/[(1+R)^N-1]
where P means principal, R means the interest rate, and N is the tenure in months.
Here is an example of putting the formula into practice-
Suppose you get a loan of 10 lac to purchase your desired bike at an interest of 10%. If you go for a tenure of 5 years for the repayment of the loan, your Equated Monthly Instalment (EMI) will be-
EMI = Rs. [1000000 x 0.12 x (1+0.12) ^60]/ [(1+0.12) ^60-1]
EMI = Rs.22,244.45
Manual calculations can be confusing and time-consuming compared to an automatic bike EMI calculator.
Everyone who owns or doesn’t own a car knows the need for a bike. Two-wheelers make daily commuting easier and more convenient. Although everyone knows its value, people take a step back considering the high price. There is no better alternative than a bike loan or two-wheeler loan to purchase your dream bike. If you fancy adventure sports or racing, some finance companies also offer loans on superbikes. An EMI calculation helps you understand your monthly expenses before applying for a loan. Depending on your ability to repay the monthly debt, you may or may not apply for a bike loan.