How to Refinance Two-Wheeler Loan Explained

Arun has a two-wheeler loan going on against his bike. However, he's not happy with the interest rates and other terms of conditions of his current loan account. In such a situation, Arun can opt for two-wheeler loan refinancing. It means taking out a new loan to clear existing debt. But, how does taking another loan help Arun? 

In this article, we have laid out what two-wheeler loan refinancing means, how it works, its benefits and pitfalls so that you can make an informed decision. Understanding the specifics of motorcycle loan refinance can help you fetch better deals compared to your existing loan. 

What is Two-Wheeler Loan Refinancing? 

Two-wheeler loan refinancing involves taking out a new two-wheeler loan against your old bike to pay off ongoing two-wheeler loan. Loan refinancing is usually done to improve the loan terms, potentially lowering your EMIs or reducing the overall interest rate. 

Pro-Tip: Go for two-wheeler loan refinancing only if you find better deals.

How Does Two-Wheeler Loan Refinancing Work?

1. Apply for a New Loan 

You apply for a new loan from a different lender with better terms compared to your ongoing loan.

2. Pay Off the Existing Loan

Once approved, the new credit is utilised to clear the outstanding balance of your existing two-wheeler loan.

3. New EMIs Under New Loan Terms

You can then start making payments on the new loan as per its terms, which might include a lower interest rate or different repayment period.

How to Refinance Your Two-Wheeler Loan

Step 1: Contact Your Current Bank 

Before you refinance, it's important to contact your current bank. Ensure that your existing creditor has received all the repayments. At the time of refinancing, your new creditor may ask how much you owe to your existing bank. Once you receive the payoff amount from the current creditor you need to refinance your loan within a specific period. 

Additionally, enquire about any fees associated with refinancing. Your current bank may charge an early loan prepayment fee, while your prospective loan provider might charge application or refinancing fees. Be sure to ask potential banks about any additional charges they may apply when you refinance two wheeler loan. 

It's also beneficial to assess the value of your two-wheeler at the time of refinancing. If you owe more money than the value of your vehicle, banks may view you as a higher-risk borrower, making it more difficult to secure a motorcycle loan refinance. 

Step 2: Checking Your Credit Report and Credit Score 

Your credit report and credit score play a significant role in the bike loan refinancing process. Before applying for a new loan, it's essential to review your credit report for any errors or incorrect information. 

Potential banks will consider your credit history and credit score before approving your loan. A higher credit score improves your chances of getting fast approval for a motorcycle loan refinance and may lead to better loan terms and lower loan rates. However, keep in mind that each credit enquiry may reduce your credit score, so limit the number of times banks check your credit report. 

If you find any issues on your credit report, file disputes promptly with the relevant credit reporting agency to have the errors corrected before applying to refinance your two-wheeler loan. 

Step 3: Gathering Required Documents 

To streamline the loan application process, gather all the necessary documents beforehand. While you can wait until you apply to collect these documents, having them ready will expedite the processing of your loan application. Here are some essential documents you will need: 

• Your driver's licence
• Two-wheeler identification number 
• Insurance details for your two-wheeler
• Make and model information of your two-wheeler
• Valuation of your two-wheeler

Step 4: Comparing Banks 

When it comes to refinancing your two-wheeler loan, it's crucial to compare multiple banks. Interest rates and terms vary between banks, so shopping around will help you secure the best deal for bike loan refinancing. 

Create a list of banks with the best rates, special offers, and discounts. This will help you make an informed decision based on your specific needs and requirements. Remember to consider the total amount you will be paying over the life of the loan. Thoroughly evaluating these factors can lead to a more favourable motorcycle loan refinance and help you achieve lower loan rates. 

Step 5: Applying for Refinancing 

Once you have selected a bank for motorcycle loan refinance that fits your financial situation, you can proceed with the loan application. Most banks allow you to submit your application through their mobile app or online platform. The bank will conduct an enquiry on your consumer credit report and may request additional details to complete the application process for bike loan refinancing. 

The approval process typically takes between two hours to two days, depending on the bank. Once approved, your previous loan will be fully repaid, and you can focus solely on your new two-wheeler loan, aiming for lower loan rates and improved financial terms. 

When Should You Apply for Two-Wheeler Loan Refinancing?

You can go for two-wheeler loan refinancing if:

• You have a better credit score and are eligible for lower loan interest rates
• You want to close your existing loan with lower rates and shorter tenure
• You are eligible for better deals and other benefits