Applying for a two-wheeler loan may seem simple, but even small mistakes can lead to higher EMIs or loan rejection. Here's a list of common errors to avoid for a smooth and hassle-free loan
The purchase of a new two wheeler can be an exciting and equally daunting process. Selecting the ideal model considering factors such as fuel efficiency and engine performance can be very overwhelming. Adding to that, securing the appropriate financing with the help of a two wheeler loan calls for mindful consideration as any errors can adversely impact financial planning.
Having a good understanding of the common challenges and avoiding them is vital to ensuring a hassle free journey to the dream two wheeler vehicle. Furthermore, ownership of a two wheeler can be made more accessible through distribution of the price across an extended period of time.
On the other hand, any myths and misconceptions can greatly complicate the various available financing options. Explore the top 7 mistakes to avoid when applying for a two wheeler loan and you as a borrower can easily stay away from potential pitfalls. This way, you can smoothly secure the financing you need to own your dream vehicle.
Let’s learn more about the 7 common blunders to avoid doing when applying for a two wheeler loan:
Lack of Lender Research
A major mistake which individuals tend to commit as they apply for a two wheeler loan is not giving adequate time to looking lenders up online. This is especially before they consider accepting the first offer that comes their way, or also while opting for financial support directly from any dealership. It is vital to carry out a comprehensive analysis and comparison of the many lending institutions available to make a better informed decision. A smart approach is to opt for borrowing from a reputed financial institution that holds a strong and reliable track record in the lending market.
Overlooking Your Credit Score
Borrowers may face challenges while applying for a two wheeler loan if they have a low credit score. Such an application could lead to lenders levying higher interest rates than you anticipated, larger down payments, stricter payment terms, or even rejection of their loan application. On the other hand, having a strong credit score can have a positive impact on them being offered more favorable loan terms on their dream two wheeler. Borrowers must remember to check their credit score prior to applying for their loan. It’s recommended to aim for a range of 700 and 900. If it falls short of this range, engage in proactive measures to improve it, such as keeping monthly EMI payments consistent, clearing off any pending debts, and more.
Opting for Zero Down Payment
Borrowers may find a zero down payment loan option very appealing, wherein they take home their dream two wheeler home at no initial cost. However it is crucial to remember that it can prove to be more expensive in the long term. When they make a down payment, they in fact bring down the total loan amount and the interest levied on it, thereby reducing their financial burden over the loan's repayment tenure. A zero down payment essentially means that they're fully financing the vehicle's cost, leading to higher EMIs and a greater commitment throughout their financial journey. Conversely, a down payment helps result in a smaller loan amount and often a lower interest rate, effectively reducing their financial strain throughout the loan's duration.
Lacking a Repayment Plan
One of the most critical mistakes borrowers commit is to apply for a two-wheeler loan without a solid repayment plan in hand. Such oversight translates to significant financial strain in the long run. It is vital for borrowers to outline at least a rough and robust strategy for repaying their loans before deciding to commit. This strategy should ideally consist of setting a realistic budget, prioritising EMI payments, and considering making extra payments whenever possible. Utilising a two-wheeler loan EMI calculator can help determine an affordable monthly amount that aligns with your financial capacity. Remember that a longer loan tenure generally results in a higher total repayment. By monitoring their spending habits and cutting unnecessary expenses, they can ensure timely EMI payments, maintain a good credit score, and positively impact their future loan approval prospects.
Applying to Multiple Lenders Simultaneously
A common misstep that borrowers tend to make is applying for a two-wheeler loan with various lenders simultaneously. They do this in hopes of increasing their chances of approval. However, this approach can be counterproductive. Applying to numerous banks within a short period can make them appear "credit-hungry" to lenders, potentially leading to loan application rejections. Even worse, each application often results in a "hard inquiry" on their credit report, and a high number of these inquiries in a short span can actually lower their credit score, making it harder to secure financing in the future.
Neglecting the Fine Print
Borrowers that fail to thoroughly read and understand their two-wheeler loan agreement will suffer from a major oversight. Many borrowers skip the fine print, leading to potential financial traps and confusion. Before signing, they should take adequate time to scrutinise all terms and conditions thoroughly. This includes two-wheeler loan interest rates, down payment details, loan repayment terms, prepayment penalties, and processing fees. They especially should not hesitate to ask the lender for clarification on any doubts. A careful review always ensures that they comprehend their contractual obligations, preventing unexpected burdens and facilitating efficient financial planning.
Providing Inaccurate Information
Missing out on or providing inaccurate data in the loan application is a massive mistake for any borrower. Such errors can push their application into a higher risk assessment, potentially leading to undesirable outcomes such as higher interest rates or even outright rejection of their loan application. They must bear in mind to always ensure that all the information they have provided is accurate and complete. This helps their lender facilitate a smooth approval process and secure favorable terms.
The mistakes highlighted above can have significant and often negative repercussions on your two-wheeler loan application and your financial well-being. Failing to research lenders adequately can lead to accepting offers with exorbitantly high interest rates or hidden fees, ultimately increasing your overall cost of borrowing. Similarly, a low credit score directly translates to less favorable terms, potentially resulting in higher EMIs, larger down payments, or even outright loan rejection, severely limiting your options.
Opting for a zero-down payment, while initially attractive, burdens you with a larger principal loan amount, leading to higher interest accrual over time and a heavier monthly EMI. Applying to multiple lenders simultaneously can backfire, making you appear desperate for credit and triggering multiple hard inquiries that damage your credit score, making future loan approvals more challenging.
Furthermore, neglecting to establish a clear repayment plan can lead to financial distress, missed payments, and a plummeting credit score. Lastly, overlooking the fine print or providing inaccurate information can lead to unexpected charges, unfavorable clauses, or even loan denial due to inconsistencies or perceived dishonesty. In essence, these mistakes can transform the excitement of buying a new two-wheeler into a stressful and financially draining experience.
Avoiding the top 7 common mistakes by borrowers as discussed in this article is paramount for a smooth and successful two-wheeler loan application. By thoroughly researching lenders, maintaining a healthy credit score, making timely down payments, planning repayments diligently, applying strategically, and meticulously reviewing loan terms, borrowers can secure favorable financing. Proactive preparation and attention to detail will not only enhance their chances of approval but also ensure a financially sound and enjoyable journey with their new dream bike or scooter.
Frequently Asked Questions
Why was my two-wheeler loan application rejected?
Your two-wheeler loan application could have been rejected owing to a low credit score, inadequate income to cover your EMIs, a high debt-to-income ratio, or mistakes in your application. Lending institutions also consider factors like unstable employment record, too many recent loan inquiries, or not satisfying their specific eligibility criteria.
Can I cancel my two-wheeler loan after approval?
Yes, you can cancel your two-wheeler loan even after approval, however the process and associated charges vary depending on the lending institution. If the loan amount is yet to be disbursed, cancellation is usually simpler. In the case it is disbursed, you might need to repay the full amount with any applicable pre-closure charges.
Can a defaulter get a bike loan?
It can prove challenging for a defaulter to get a bike loan owing to a negative credit history. Lenders generally perceive defaulters as high-risk. While some specialised lenders might offer loans at significantly higher interest rates, it's advisable for defaulters to first improve their credit score by clearing past dues before applying.
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