Owning a two-wheeler has become a necessity for most people now, but not everyone can afford to buy one. If you have decided to purchase a two-wheeler but do not want to spend your savings on it, then a bike loan or two-wheeler loan might be a good option. Before applying for the loan, it would be good to know how the loan works and how your CIBIL™ score affects your chances of securing a two-wheeler loan. Read on to know more.
What is a two-wheeler loan? What are the eligibility criteria?
Two-wheeler loans are secured loans, meaning that the loan is given against the two-wheeler that you will purchase. Two-wheeler loans are available for the purchase of new or second-hand two-wheelers. The loan amount given will be based on the two-wheeler cost, quote, condition, and your personal eligibility criteria. Typically, banks or financial institutions sanction 85% – 100% of the value of the vehicle as the loan amount.
Different banks and financial institutions set different criteria but broadly, it depends on the borrower’s credit score, age, income, tenure, residential stability, work experience, etc.
What is a CIBIL™ score and who calculates it?
A CIBIL™ score is a number ranging between 300 to 900 summarizing the credit history of the individual. It is a standardized representation that depicts a person’s current liabilities and ability to repay potential new credit.
TransUnion is the most popular of the 4 credit bureaus that calculate credit scores. It calculates the scores based on multiple factors like credit outstanding, payment history, credit type, and credit history based on credit card usage.
The table below provides a brief analysis of credit scores and their interpretation for the purposes of loan sanction:
| Credit Score | Analysis | Interpretation | |
| 300-550 | Poor | Very low scoreNeed to urgently work on improving my credit score. Implies very low creditworthinessNo lenders are likely to extend loans unless they charge very high-interest rates. | |
| 550-650 | Fair | The score needs to be worked uponFew lenders will still provide loans at higher interest rates | |
| 650-750 | Good | The score is good but can still be improvedMost lenders offer loans at reasonable interest rates. | |
| 750-900 | Excellent | Highly creditworthyLoans are available at the best interest ratesAll lenders extend loans to these individualsFaster loan approval | |
How will CIBIL™ score affect my chance of securing a Two-Wheeler loan, what is the minimum score needed?
Generally, a CIBIL™ score of 700 or above is considered satisfactory. For secured loans like two-wheeler loans, a slightly lowerCIBIL™ score is also considered acceptable since the collateral is enough to cover the amount sought. So even if yourCIBIL™ score is slightly lower than 700, several banks or financial institutions would still agree to extend the two-wheeler loan to you.
What is the Impact of a LowCIBIL™ score on a Two-Wheeler Loan?
Banks or financial Institutions do entertain Two-Wheeler loan applications from individuals with less-than-idealCIBIL™ scores, but stipulate a few additional conditions for sanction of the loan:
- Higher Interest Rates
If theCIBIL™ score is low, the banks or financial institutions might charge a significantly higher rate of interest than their regular rates for the two-wheeler loan. This is done at the discretion of the lender to offset the additional risk they carry to provide a two-wheeler loan to an individual with a lowerCIBIL™ score.
- Lower Loan Amount Sanctioned
The banks or financial institutions might approve a lower loan amount than what is normally given for a vehicle of a particular value and make the borrower pay a higher down payment amount. This helps the lender to reduce the risk exposure in case the borrower defaults on the repayment.
- Co-Applicant or Guarantor
Some banks or financial institutions do insist on having an additional co-applicant or guarantor before the loan is granted to an individual with a lowerCIBIL™ score. This gives the bank or financial institution leverage to make the Co-applicant or Guarantor liable to repay the loan amount in case of a default on EMI payment by the borrower. This acts as an additional security for the lender when granting the loan to individuals with lowerCIBIL™ scores.
- Rejection of loan application
If theCIBIL™ score of the individual is too low, and they do not have a co-applicant or guarantor, then the banks or financial institutions might reject the Loan Application. This typically happens when theCIBIL™ score is too low, other loan approval criteria given above are also not met satisfactorily, and the lender does not want to carry the risk of getting into non-payment issues.
How to get a two-wheeler loan even with a low CIBIL™ score?
If you have a lowCIBIL™ score, you might still be eligible for a two-wheeler loan, here is a list of pointers to handle such an event:
- Ensure all other documentation is in good form.
Banks or financial institutions set a few criteria for eligibility and theCIBIL™ score is one of these. If all the other criteria like bank statements, salary slips, and IT returns are met perfectly, you still stand a chance to get the loan approved even if theCIBIL™ score is low. So, if you have a lowCIBIL™ score but are earning a steady and good income, have good repayment history for the last few months, and have all other two-wheeler loan documents in perfect condition, then you might just get your loan request approved without any additional requirement.
- Lower the loan amount sought and agree to pay a higher down payment.
The banks or financial institutions might agree to sanction the loan application for a lower amount than what is requested if you propose to pay a higher down payment amount. This means that you will need to cover the higher down payment amount upfront.
- Negotiate with the bank or financial institution.
If you can demonstrate your ability to repay the loan even when having a lowCIBIL™ score, you might be able to negotiate with the bank or financial institution to approve the loan amount. This is especially true for self-employed individuals, who can increase their income with additional effort, or those who have recently moved to new jobs with higher pay.
- Get a co-applicant or guarantor for the loan.
Propose having a co-applicant or guarantor with a good credit score. This reduces the risk for the Bank or Financial Institution drastically as mentioned above.
Conclusion
Having a good CIBIL™ score vastly increases your chance of getting a two-wheeler loan approved, but if the score is low, then there are a few options that you can exercise to ensure the loan is approved. Do thorough research with different banks or financial institutions before signing up for a two-wheeler loan.