Do NBFCs Provide Bike Loans at Higher Rate of Interest- Myth Busted

A bike loan has become quite popular among people. It makes buying a bike or any two-wheeler much more convenient. Different financial institutions offer these loans, like banks and NBFCs. You can reach out to these institutions and borrow a certain amount, and then pay interest on the amount till the time the amount is fully paid. 

While NBFCs are quite popular for getting a bike loan, several myths surround them. For instance, they charge a higher rate of interest. However, the NBFCs are quite lenient with the terms and conditions of the loan. Read on to know why NBFCs are the best choice for a bike loan. 

Interest Rates Offered by NBFCs

As per several reports, about 75% of two-wheelers in India are bought with a bike loan or a two-wheeler loan. Out of these 75%, 97% of the loans are either given by banks or NBFCs. Many people have this notion that the bike loan interest rate offered by NBFCs is higher compared to banks and other financial institutions. However, in reality, it is quite the opposite. Part of the reason why is that The Reserve Bank of India regulates NBFCs. However, they are governed by the Companies Act, of 1956, unlike the banks governed by the Banking Regulation Act of 1949. 

Banks are considered to be a safe option for loans. However, a bank’s bike loan interest rate depends on factors like RBI policy rates and other market forces. The bike loan interest rate offered by NBFCs is influenced by factors like retail prime lending rates and competitors’ interest rates. Therefore, the bike loan interest rate offered by an NBFC is far lower than that of a bank. Also, the repayment terms of NBFCs are much more generous. 

Let us delve deeper into the benefits of taking a bike loan from an NBFC. 

Benefits of choosing an NBFC for a bike loan

There are several benefits of choosing an NBFC for a bike loan. A few of these benefits are discussed in detail below:

Faster Processing

Bike loan processing is very rigorous at both public and private banks. They carefully examine the applicant’s eligibility, creditworthiness, and other factors before approving the bike loan. Banks only start the approval after analysing the documents and the applicant’s qualifying requirements. NBFCs, in contrast, are more forgiving and put the consumer’s convenience first. As a result, loan disbursements happen immediately after approval. Also, you need minimum documentation to get the bike loan processed. 

Lesser Emphasis on Credit Score

Banks give the applicant’s credit score more weight. They are apprehensive about providing bike loans to individuals with bad credit. Additionally, they must abide by regulations laid down by the Government and RBI standards. You need a credit score of at least 750 to apply for a bike loan from a bank. NBFCs, on the other hand, are far more tolerant and provide two-wheeler loans to candidates with a credit score of even 600! Additionally, NBFCs have adopted a more dynamic strategy by relying on machine learning (ML) and artificial intelligence (AI) algorithms to predict if a borrower is likely to repay the loan.

Longer Repayment Tenure

Banks are known to provide a fixed repayment tenure for a bike loan. A bank’s repayment tenure ranges from 12 months to 36 months. In rare cases, this tenure might be 48 months. On the other hand, NBFCs are quite generous regarding loan repayment. They offer a repayment period of around five years, giving the borrower enough time to repay the loan. A few NBFCs also offer a repayment tenure of 7 years. 

100% Financing

NBFCs may also finance as much as 100% of the vehicle’s on-road cost. Added fees like RTO and insurance premium fees are included in this. In contrast, banks usually contribute between 60% and 70% of the two-wheeler’s cost.

Minimal Down Payment

If you get a bike loan from an NBFC, you won’t have to worry about making a sizable down payment all at once. On the other hand, you must pay 15% to 30% of the bike’s ex-showroom price to banks. You may avoid this trouble by selecting an NBFC to obtain your bike loan. You can determine your monthly EMI payment and required down payment with a bike EMI calculator, which is easily available online. 

The reasons mentioned above explain why NBFCs outperform banks in terms of popularity and market dominance. They follow more lenient procedures before giving bike loans. NBFCs can provide better loan terms, including nominal interest rates and longer repayment periods. Additionally, NBFCs, unlike banks, do not need extensive documentation, thus lowering processing times. 
When obtaining a bike loan from an NBFC, you can also take advantage of low foreclosure fees and incentives for pre-approved two-wheeler financing. You must try to reach out to different NBFCs before you decide to choose a lender. You must also compare the bike loan interest rate offered by different NBCFs to ensure you save some money on interest.