Financing your new automobile purchase has become quite easy and convenient in today’s day and age. Digitisation has made it easy for individuals to get loans that fit in with their requirements and budget. However, to fully leverage this, you must have sufficient knowledge of the various loan products and services offered.

Many people get confused between getting a car or a two-wheeler loan. With this article, we hope to help you gain a better understanding of these. Learn more about the risk factors, eligibility, and documentation requirements of both and take an informed decision when buying a new vehicle.

What is a Two-Wheeler Loan?

As the name suggests, you can use the funds obtained through this loan to purchase a bike or a scooter. This financing option is usually offered for a tenure of up to 4 years. Bike loan interest rates typically start from 7.30% per annum.

With this loan, you can borrow an amount equivalent to 95% of your bike’s value. An interesting feature of a bike loan some lenders offer is that you can repay the money in cash if you do not have a bank account. Some financial institutions also allow you to make prepayments and foreclose the loan. Availing a bike loan is a better financial option than paying the amount in cash as it avoids stress on your pocket.

What is a Car Loan?

A car loan can be utilised to buy your dream car. You can receive up to 100% funding of your car’s on-road value. Furthermore, if you are looking to buy a second-hand vehicle, you can borrow up to 85-90% of its value with a car loan.

The tenure of these loans can stretch up to 7 years in most cases and the repayment structure consists of EMIs. When you get a car loan, the lender usually holds your newly bought car as collateral. If you are purchasing a brand-new automobile, you can also get additional benefits and flexibility if you get a loan with a financial institution which has a tie-up with the dealership. This can help you get the required credit at the most favourable terms.

It is possible that you are still deciding on your finances and have yet to choose between buying a bike or a car. Let’s compare two-wheeler loans and car loans to understand them further!

• Amount Borrowed

The amount usually borrowed with a car loan is more than that of a bike loan. This is because the price of a car is usually higher, compared to that of a bike. This can have an impact on your EMIs as your principal amount contributes towards the calculation of your monthly interests.

• Loan-to-Value Ratio
  A Loan-to-Value (LTV) ratio determines the maximum amount you can borrow as against the value of the assets held as collateral by the lender. In the case of auto loans, the vehicle you wish to purchase becomes the collateral. The LTV ratio for a car loan stands at up to 100%, while that of a two-wheeler loan can be up to 95%.
• Interest Rate
  The interest rate you are expected to pay is usually higher for two-wheeler loans than that for car loans. For bike loans, the rate can typically go as high as 28.30%, while car loan interest rates do not go that high. This is because the risk of default associated with bike loans is comparatively higher than for car loans.

• Tenure
  The tenure of repayment also differs for both products. Due to the amount being higher and the default risk low, car loans tend to have a longer tenure. It can be as long as up to 7 years for most lenders, while a two-wheeler loan tenure might generally stretch up to 4 years.
• Eligibility
  If you wish to apply for a car loan, the lender is likely to check your credit history and repayment capabilities. Your creditworthiness and income are significant factors in determining whether you can borrow the money or not. On the other hand, the eligibility requirements for a two-wheeler loan are minimal, with the requirements way lower than those in the case of car loans.
• Risk of Default

The risk of default is higher for bike loans compared to car loans. This is because the amount borrowed is lower and the bikes are more vulnerable to accidents and theft. Additionally, the lifespan of two-wheelers is usually shorter than that of cars. All these factors lead to an increase in the bike loan’s risk factor for the lender.

When taking a decision it is essential to keep these factors in mind and calculate your probable monthly instalments. A sound financial plan begins with understanding your wants, desires, and budget. When opting between the two options consider the purpose for which you look to buy the vehicle. Is it to commute to work? Is it for family trips and quality time? This will help you narrow down your options considerably.

Then comes the biggest factor that influences your purchase decision, your budget. Compute the amount you can pay as EMIs and check loan plans that fit into your budget. You can check the instalments for both bike and car loans with the help of an EMI calculator to choose the option that suits your requirements the best. Consider these pointers and then take an informed decision to get the automobile you want.

KR Desk