While early 2022 witnessed a slump in auto sales, the two-wheeler segment continued to remain popular among Indian citizens. Two-wheeler sales are showing an upward trajectory, and popular brands such as Honda and TVS are registering M-o-M growth. During the festive season, brands offered numerous deals and hefty discounts, resulting in retail sales growing by 9 percent Y-o-Y in September.

During this period, prospective bike owners took advantage of nominal interest rates offered by lenders. The two-wheeler loan interest rate dictates how viable – and expensive – a two-wheeler is for any buyer. Banks, NBFCs and captive finance companies offer interest rates ranging from 6.85% to around 28.3% per annum. If you are considering buying a two-wheeler in 2023 and want to opt for bike financing through a two-wheeler loan, you should know about the different factors that will likely affect your bike loan interest rates.

Types of bike loan interest rates

While applying for a two wheeler loan, it is important that you know about the different types of two-wheeler loan interest rates.

- Fixed interest rate: If you opt for a fixed interest rate, the EMI amount remains the same throughout the repayment period. The interest rate remains unchanged, regardless of the market movements.

- Variable interest rate: If you choose a variable interest rate, then the EMI amount can change depending on the market conditions. Thus, the variable interest rate can either be less or more than the fixed interest rate, which brings uncertainty.

Factors influencing bike loan interest rates

If you opt for bike financing through a two-wheeler loan and choose a fixed interest rate, then several factors can affect the interest rate.

  • Credit score

One of the key factors that can influence the two-wheeler loan interest rate is your credit score. Today, banks are apprehensive about approving loans if you have a credit score of less than 750. On the other hand, NBFCs sanction loans even if the applicant has a credit score of 600. However, the interest rate against the loan amount is significantly high. Thus, if you can build a good credit profile and have a credit score of more than 750 in 2023, your loan application will be approved fairly quickly, and you will enjoy nominal interest rates.

  • Down payment

While looking through bike finance options, you should consider making a substantial down payment, covering 30 - 40% of the vehicle's on-road price. This, in turn, results in the lender levying a nominal interest rate.

  • Employment status and income

Your employment status and income play a vital role in determining the two-wheeler loan interest rate. If you are a salaried employee and earn more than ₹1 Lakh per month, your loan application will be approved faster, and you can avail of low interest rates.

  • Place of residence

If you plan to stay or move to a metropolitan city this year or in 2023, then you will incur high interest rates. This is because of the debt-to-income (DTI) ratio. As your daily expenses will be higher in metropolitan cities compared to tier-two cities, your earnings will have to be significantly greater to repay the loan. Thus, lenders can levy a higher interest rate on the loan amount.

  • Age

Your age will also play an important role in determining the two-wheeler loan interest rate. You can easily repay your debt if you are young – in your 20s or 30s. However, your repayment capacity decreases considerably if you are older – in your late 50s. Lenders will consider these factors while extending bike financing options. Thus, the older you are, the higher the interest rate will be. If you are about to enter your late 50s in 2023, then you will have to incur high interest rates.

  • Make and model

The two-wheeler model, its type and its make also influence the interest rate the lender charges. The more expensive the two-wheeler, the higher the interest rate. Lenders prefer financing bikes that inherently have a high resale value.

  • Loan tenure

Lastly, your loan tenure will also affect the interest rate on the loan amount. The longer the repayment period, the lower the interest rate.

How can you lower the two-wheeler loan interest rate?

If you still have at least 5-6 months before opting for bike financing in 2023, you can undertake several measures to improve your credit profile. This, in turn, will enable you to avail of low interest rates.

Improve your credit score

You can try and improve your credit score, and this can be done by repaying your debts and paying your EMIs on time. Once your CIBIL score reaches 750, you can apply for a bike loan and avail of a lower two-wheeler loan interest rate.

Debt-to-income ratio

You can also improve your debt-to-income ratio by clearing old loans, reducing miscellaneous expenses, and making on-time credit card payments. If you bring your debt-to-income ratio below 40%, you will have a better chance of getting attractive interest rates on your bike loan.

Improve your relationship with the lender

You can either negotiate with the lender or apply for a two-wheeler loan from a lender with whom you have an existing relationship. You can talk to your bank and see if you can get low interest rates on the two-wheeler loan.

Conclusion

The aforementioned factors will dictate your two-wheeler loan interest rate. Furthermore, you can aspire to get low interest rates by improving your credit profile and debt-to-income ratio in 2023. Certain lenders also do not have minimum credit score requirements and offer nominal interest rates with flexible repayment terms. For instance, Bajaj Markets offers two-wheeler loans at low interest rates and does not have a minimum credit score requirement! You can avail of attractive two-wheeler loan interest rates by opting for bike financing options on the digital platform.