We have all been there. Scrolling down an automotive website, looking at all the hot new metal and dreaming. What if we too could afford one of these? One bike would lead to another and then another and finally, we’d have a garage full of dreams. The only problem with that was reality tended to be different. In the harsh light of day, we’d be swinging our bags on our shoulders and head to work. Braving the pains of yet another commute either on the public transport system or on our humble commuters. But what if I told you there are ways and means to at least get started on that dream garage, without ever having to consider selling your vitals to the highest bidder? Got your ear now, haven’t I? Well, then, read on my friend and it might just lead you to own one of the fancy bikes that have occupied a portion of your bedroom wall.
And it all starts with taking stock of your financial condition. It is only once you have made that assessment with relation to the price of the bike you want; then you will be ready to take the next big step – finance options. You could of course do the leg work yourself and scour every financial institution in your city to find out what these options are. Or, if you’re smart, you’ll have guessed that I’ve already done it for you and will simply scroll down.
It’s obvious, isn’t it? If you’ve got the money, just bloody pay the whole damn thing upfront and ride home. No down payment or interest rates or EMIs to bother with. There’s certainly less paperwork too. Ask my former ex-colleague Sudipto, if you don’t believe me. When he bought his KTM 390 Duke a while ago, he paid the entire Rs 2.57 lakh, by cheque. And the bike was his. While most dealers will not advertise this, your waiting time will be less because you’re paying all the money upfront without any borrowing. Why? Because you don’t have to wait for loans to be processed or approved. And these things take time.
Meant for vehicle purchases, private banks are more likely to push you to go for a two-wheeler loan. The working principle of both two-wheeler and personal loans are the same, with minor differences. When it comes to two-wheeler loans, the bank sends the money to the bike dealer directly instead of giving it to the customer, giving the bank full control. That is the fundamental difference between a two-wheeler and personal loans. Two-wheeler loans don’t fund the full pricing of the bike – typically 75 to 95 per cent covers the cost (ex-showroom) of the vehicle. You have to contribute the rest, including registration and insurance. Then there is the case of hypothecation we mentioned earlier, but is that the top thing running on your mind? Ultimately, you are paying EMIs in both cases.
Also, the financers offer a better rate of interest as per the price of the bike – which is not possible in a personal loan. The rate of interest for buying a Ninja ZX-14R will be lesser than the rate of interest for buying a KTM 200 Duke. The manufacturer usually collaborates with banks or individual finance firms to make the buying process easier for a litre-class bike. Usually, they work with banks to help the customer finance the deal while bearing the cost of finance, while giving the customer a lower rate of interest. Two-wheeler loans are accessible for both salaried as well as self-employed individuals. There are hidden charges as well in both cases – like processing fees, stamp duties, and foreclosure charges.
They are also called as NBFCs (non-banking finance companies) and some examples of NBFCs are Bajaj Finance, Wheels EMI, and Muthoot Finance Limited. According to reliable sources, these NBFCs are aggressive in their approach compared to even private banking firms, as they have a ready payout model to sort it out for the customer. Manufacturers have tie-ups with many of these NBFCs to get the customer on board. Manufacturers or dealers get a better payout model for the customer from private moneylenders compared to private banks. While the rate of interest is fixed in personal or two-wheeler loans, some private banks have variable or floating rates of interest, including a few NBFCs.
Wheels EMI is probably one of the few (or only) NBFCs whose sole focus is on financing two-wheelers – used, new and electric. They have tie-ups with different manufacturers including Royal Enfield (Vintage Store included), Triumph Motorcycles, and HMSI (including Honda Best Deal). They are the only NBFC that finance bikes as old as a decade. Srinivas Kantheti, co-founder and MD, says they are more bike-focused than returns-focused. The company’s top brass has worked in the motorcycle industry for many years and they are also a group of biking enthusiasts, so these chaps know their bikes enough to bet on which bikes will give them good returns. They test the bikes before handing them over to the customer (except big bikes, as the service blokes test them).
Documentation for buying a litre class bike will be more compared to commuter bikes; you have to provide your bank statements and IT returns apart from KYC documents. Srinivas says 70 per cent of their customers don’t have credit scores as they are new to credit and that not having one is not a hurdle to get the loan. They also cover a maximum cost of 70 per cent for big bikes and more can be possible, depending on the customer profile. As mentioned earlier, big bikes have a smaller rate of interest and small bikes have a higher rate of interest. The interest rate is 5-6 per cent more than that of a new bike. Wheels EMI also takes care of registration, transfer, and insurance in the cost that they cover. Did we mention that there is no collateral required while financing the bike? That is because of the thing called hypothecation which comes to play here.
What exactly is a personal loan? In simple terms, it is an unsecured loan offered by financial institutions like banks or NBFCs to an individual based on his/her profile. Personal loans are specific to salaried individuals and the segment is so specific that different corporates have different rates of interest. A small manufacturing enterprise SME would have a different rate of interest compared to an IT firm. So if you are a salaried individual, there are many good reasons as to why you should opt for personals loans while buying two-wheelers. For starters, you get a loan amount that covers 100 per cent of the two-wheeler’s on-road price. This eliminates down payment headaches and the need to stay alive without food for some days.
You do not need to have a credit history, the eligibility criteria are simpler (even if your monthly income is 20k, then you are good to go!) and the tenure for personal loans is small. Since it is an unsecured loan, a major advantage is that you don’t need to provide any collateral or security. In simple terms, the bike is in your name from the start and not in the bank’s name. On the downside, the rates of interest are high when you opt for this route. In the case of two-wheeler loans, the vehicle is in the bank’s name and once you pay off the loan, it gets transferred to your name. This is called hypothecation.
Personal loans hugely depend on the profile of the person – if you earn 75 grand a month, your rate of interest will differ from another bloke who earns 30 grand per month. While personal loans are capped at Rs 50 lakh, we’d reckon that unless you’re buying a Superleggera or some Italian hottie, a personal loan pretty much covers the entire price range of all bikes sold in the country.
The digital revolution
It started with select vehicles, which were available to book on digital platforms to gauge customer response, and now, you can book almost any vehicle from any of the brands via Paytm or any other similar platform. If you have a credit card, you can also get attractive offers and benefits from these platforms. Now, before you get all excited, there is a limitation. Using Paytm, you can buy many commuter bikes and certain sports/naked/cruiser bikes up to 200cc or 300cc. If your plan is to buy mid-segment bikes, you still have to take a trip to the showroom.
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Some blokes at the dealership may even ask you to opt for the digital route for a good deal. You can pay the full amount via Paytm (through credit card) to the dealer to avail attractive cashback offer. Note that you get the cashback offers only when you have paid the full amount of the bike. You don’t necessarily get that half-face helmet to go with your trendy Vespa but you can show your negotiation skills to get decent gear since you have paid the full amount in one swing.
As you probably know, credit cards allow you to spend higher than your income permits, while you can pay back on monthly basis with an added rate of interest. The general perception is that buying pricey products using a credit card is a bad idea due to high rates of interest – which is true if you opt for normal credit card terms. But these days, there are a lot of cashback offers, the addition of air miles, and various other benefits. It’s also easy to get a credit card these days the documentation required is also fairly simple. You need to be above 18 years, have a stable income, and good credit history. To build a good credit history, you need to pay the minimum due before the deadline. Start off small and increase the credit limit by paying the dues in a timely manner and increase the CIBIL (Credit Information Bureau (India) Limited) score. A good CIBIL score (a score of 750 is recommended) is important for banks as that’s how they trust you with a credit card.
But the main question is, should you opt for the credit route? The simple answer is no, you shouldn’t. Because people make the stupidest mistake when they are desperate and credit card companies feed on desperation. With tempting offers and even more tempting interest rates, credit card companies just want you to sign up and they hope that you miss the billing cycle, end up paying double the cost of what the product value, thanks to the truckload of interest charges which cause you heartburn in the end. Use credit cards only if you are confident that you can repay the full amount before the billing cycle ends, with zero interest rates.
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Don’t buy a two-wheeler using…
No matter how desperate you are to buy that CB300R or 390 Duke stay clear of these things…
Buy at normal credit card terms
Credit cards usually have high interest rates compared to personal loans or finance deals. So unless there are some cashback offers or zero per cent deals, it’s not a smart move to jump into a deal with no benefits and high interest rates.
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Trade-in your current bike
That’s usually the first thing that pops into your mind – and it’s a bad idea. It’s easy to exchange your bike for the new one with the dealer and most likely he won’t give the correct value of your old steed. A smart way is to sell your ride beforehand to a private buyer for the correct resale value
So which one is for you?
You should have figured out by now that by the order in which we have listed things, two-wheeler loans from banks followed by NBFCs are the preferred routes, simply because of the lower interest rates and the ease of the process. Personal loans have high-interest rates and it is third on our list. Credit cards are for blokes who desperately want the money soon, with minimal paperwork and we have placed it as the last option. Credit cards are a big no-no when it comes to buying your bike, unless you get a very attractive finance deal or if you are confident that you can repay the money before the billing cycle is over. So whatever your option is, I hope you have chosen the best one as per your financial condition to funding your fun.