Purchasing a new bike or scooter is not an easy feat. With countless options available, it involves careful thought and critical decisions. From comparing engine performance and fuel efficiency to navigating the terms of a two-wheeler loan, the process can seem complex. Errors during this process can also derail your plans.
To ensure your experience remains as enjoyable as you imagined, it is essential to be aware of the common mistakes people make when they apply for a two-wheeler loan and how to avoid them.
In this article, we will explore some of the leading five two-wheeler loan mistakes and how you can steer clear of them.
What Are 5 Common Mistakes to Avoid While Applying For a Two-Wheeler Loan?
Here is a list of two-wheeler loan application mistakes people make, which can lead to unnecessary financial stress.
1. Neglecting lender research
One common two-wheeler loan mistake people commit is not researching potential lenders appropriately. This leads them to choose the first lender they come across, which can be detrimental because they may miss out on better lending options.
Sometimes, they even accept the financing options offered by two-wheeler dealers, which are more expensive than the rest. A lack of research might even give your lender an upper hand in the negotiation process, and they may push for higher interest rates or other less favourable terms for you.
It is essential always to borrow money from a reputable and reliable organisation and ensure that they have a strong track record in the lending industry. Compare different two-wheeler finance options by browsing the websites of various financial institutions. This will give you proper knowledge about their interest rates, loan tenure, processing fees, and repayment options, making you better equipped to make an informed decision.
2. Ignoring your credit score
If you have a good credit score, it can help you in obtaining more favourable loan terms. On the other hand, if your credit score is low, applying for a two-wheeler loan can be challenging.
A lower credit score range means higher interest rates, stricter repayment options, larger down payments, and loan rejections.
Before applying, remember to look over your credit score and ensure that it is between 700 and 900. If you have a lower score, take steps to improve it, like clearing your debts, maintaining a low credit utilisation ratio, and ensuring you pay your EMIs on time.
3. Choosing a zero-down payment option
Down payment refers to the initial sum a buyer might pay while purchasing a two-wheeler. It covers a percentage of the vehicle cost, and the rest is adjusted for the two-wheeler loan. A zero down payment is when the buyer makes no payment at the time of purchase, and the loan covers 100% of the vehicle’s cost.
While the offer may seem attractive initially, it costs you more in the long run. A zero-down payment means you’re borrowing more, which can result in higher EMIs and a heavier financial burden. However, paying a down payment results in a lower interest rate and a decreased loan amount, effectively reducing your financial burden throughout your loan.
4. Overlooking the loan contract
One of the biggest mistakes while applying for a two-wheeler loan is not reading the terms and conditions of the loan contract properly. That leads to inefficient financial planning due to a lack of clarity and the risk of falling into a debt trap. A careful reading of the terms can help you spot any signs of trouble. If there is any doubt, ask the lender to clarify it.
It is also extremely important to understand crucial loan terms, including loan interest rates, down payment, repayment terms, prepayment penalty, processing fees, and other contractual obligations before signing the agreement. Failing to do so can result in unexpected burdens and confusion down the line.
5. Lack of a realistic repayment plan
The most crucial component of your two-wheeler loan is the repayment. Diving headfirst into repaying your loans without having a realistic plan can lead to grave financial crunches. You can use a two-wheeler loan EMI calculator to help determine an amount that best aligns with your financial capabilities. It should be kept in mind that the longer your loan tenure is, the higher you will have to repay.
The next step of the planning includes creating a budget. In the budget, you must prioritise your EMI payments and even make extra payments whenever feasible. Monitor your spending habits and cut back on any unnecessary expenses to ensure you never default on your EMIs. This will also keep your credit score in good range. Your prospects for getting approved for a loan will not be adversely impacted.
Wrapping Up
Taking a two-wheeler loan can be smooth and stress-free if you follow the right steps. This includes carefully reading the loan agreement, conducting proper research on lenders, maintaining a good credit score, choosing an affordable down payment, and having a proper repayment plan. The primary purpose of taking a loan is to alleviate our financial challenges and have monetary support in times of need.
If you are planning to apply for a two-wheeler loan, turn to Tata Capital, which offers the best interest rates and is a reliable and reputable organisation. To know more, head to the Tata Capital website or download our app today!
FAQs
There can be several reasons for this, such as a low credit score, document errors, too many existing debts, an irregular income, or an unstable employment history.
Yes, you can close a two-wheeler loan early. It will save you interest costs and eliminate debt. However, it can also result in a prepayment penalty based on the outstanding principal amount.
20 February 2025
5 mins read
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