Purchasing bikes on loan is a common strategy many buyers use to finance their purchases. It helps them own the vehicle they desire without stressing their finances. Moreover, it distributes the cost into EMIs that the borrower can easily adjust into their monthly budget. However, what is the right bike loan amount to borrow? There is no wrong or right answer to this question. Both over-borrowing and under-borrowing can be dangerous for your financial health.
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Saturday 05 Oct. 2024
The loan amount you borrow largely impacts your interest outgo, total loan cost, and affordability. Hence, it is crucial to understand how much to borrow before applying for a bike loan. Your monthly income is one of the most important considerations when deciding the loan amount. Lending institutions may also consider other factors like your credit score, debt-to-income (DTI) ratio, etc. Let’s learn how to balance your budget and determine the right bike loan amount to borrow.
Factors to Consider When Deciding the Loan Amount
Here are the most important factors you must consider when deciding the bike loan amount.
The Bike’s Price: Check the bike’s cost you want to buy along with its bike GST rate. The loan amount you borrow depends on the bike’s price. The costlier the bike, the more you need to borrow to finance its purchase. Therefore, compare various bike models in the market and choose one that suits your budget. Although you can purchase better bikes on loan, you must eventually repay it to the lender with interest.
Down Payment: While reputable lenders like Hero FinCorp finance up to 95% of the bike’s cost, borrowing the minimum possible is a better strategy to avoid over-burdening your finances. Evaluate the bike’s price and your savings to determine how much you can afford as a down payment. The more you pay, the less you need to borrow. It reduces your loan requirement, eventually reducing your interest outgo and repayment tenure. So, look into your finances, choose an appropriate bike, and make a bigger down payment to minimise your loan burden.
Income Source and Stability: Your income is the most crucial starting point to decide your bike loan amount. If you have a stable job with ample monthly income, you may choose to borrow a bigger loan amount. The more you borrow, the bigger will be your EMIs. A sufficient income ensures you can pay your EMIs conveniently without much trouble.
Other Financial Obligations: Your existing financial obligations will largely impact the loan amount you borrow. If you have other loan EMIs to pay monthly, you may stress the finances with a new bike loan EMI. Serving 2-3 EMIs each month with limited income would be challenging. Therefore, clear other liabilities before applying for a bike loan to increase your monthly disposable income. Consider the monthly EMI amount you can afford and choose the loan amount accordingly.
LTV Ratio: The LTV ratio stands for loan-to-value ratio. It is the percentage of the bike’s cost the loan company agrees to finance. For instance, when Hero FinCorp covers 95% of the bike’s cost with the loan. The borrower must pay the remaining 5% as a down payment.
The higher the LTV ratio, the smaller you need to borrow. However, try to borrow an amount that aligns with your finances. Unnecessarily higher debt is not smart. Therefore, it is advisable you opt for an amount that you can repay comfortably.
Repayment Term: The repayment term is another important factor determining your loan amount. Understanding the workings of an online Bike Loan EMI Calculator will help you know this better. The EMI calculator calculates your monthly EMIs based on your loan amount, interest rate, and repayment term. Enter the variables accurately to get quick results.
Depending on the EMI amount, you can increase or decrease the repayment term to bring it into your monthly budget. However, a longer tenure reduces the EMI amount but increases the interest outgo, while a shorter tenure increases the EMI amount but decreases the interest outgo. If the EMIs are beyond your budget, you may opt for a longer tenure to reduce the EMI amount.
Tips for Balancing Your Budget
Now that you understand the factors affecting a loan amount decision, follow these tips to balance your budget and make your EMIs affordable:
- Review Your Finances: Monitor how much money comes in each month and where it goes. Use an app, ledger, or spreadsheet to track your income and expenses, categorise them into fixed and variable expenses, and cut down unnecessary expenses to make your EMIs easily adjustable.
- Adjust Your Spending Habits: Adjust your expenses according to your earnings and goals. Now that you aim to purchase a bike on loan, try to eliminate unnecessary expenses and save money for the down payment and EMIs. You may also find ways to supplement your income, such as taking on a part-time job, requesting a raise, or selling unwanted items. The key is to earn more than you spend and prioritise obligations over desires.
- Set Realistic Goals: Regarding bike loans, choose a bike with an affordable price tag and aim to finance it with a bike loan.
A bike loan is a convenient way to finance your new two-wheeler purchase. However, you must consider several factors before applying for a loan. Doing so will ensure you get the best loan deal that fits your budget comfortably. After carefully weighing your options, you can always apply at Hero FinCorp and get the best loan deals at competitive interest rates.
