Comparing Two-Wheeler Loan for New vs Used Bikes

In India, banks generally offer two types of Two-Wheeler Loans – loans for used bikes and loans for new bikes. Both loans are designed for different purposes. In this blog, we have shed light on two-wheeler loan for old and new bikes so that you can make an informed decision while taking a loan.  

What is a Two-Wheeler Loan for New Bikes?

Such loans a re designed for brand new two-wheeler purchase. Most banks offer such loans. For instance, with Ujjivan Chakra Loan (two-wheeler loan) you can get up to 95% financing of the on-road price of the vehicle. Most banks offer two-wheeler loans at competitive interest rates, usually rates lower than personal loans. You can repay the loan in EMIs within the pre-determined tenure. Since, two-wheeler loans are secured loans, meaning you have to pledge your bike as collateral, the documents required are fairly simple.

What is a Used Bike Loan or Second-Hand Two-Wheeler Loan?

Such loans are designed for used bike/two-wheeler purchase. Not all banks offer this facility. The applicable interest rates are generally higher than two-wheeler loans for new bikes. That’s because used bikes carry higher risks. The repayment tenure can be shorter compared to loans for new bikes. 

Bike Loan Comparison: Pros and Cons

When comparing new and used bike loans, consider:

Pros of New Bike Loans

• Lower interest rates
• Longer loan tenure
• Higher loan-to-value ratio 

Cons of New Bike Loans

• Higher overall cost due to the bike's price
• Faster depreciation in the initial years

Pros of Used Bike Loans

• Lower overall cost due to the bike's reduced price
• Less concern of depreciation 

Cons of Used Bike Loans

1. Higher interest rates

2. Shorter loan tenures

3. Lower loan-to-value ratio 

Impact on Monthly EMIs

The different loan terms of new and used bike loans may affect your EMI obligations. New bike loans may have lower EMIs due to longer tenures and lower interest rates, while used bike loans might have higher EMIs due to shorter repayment periods and higher rates. 

However, the loan amount for used bikes is typically lower, which can potentially offset the higher interest rates, leading to a comparable monthly payment compared to new bike loans.

New vs Used Motorcycle Loan: Eligibility Criteria

Eligibility requirements often differ between new and used bike loans:

For New Bike Loans:

• Age: Usually 18-65 years
• Income: Minimum ₹10,000-₹15,000 per month for salaried individuals
• Credit Score: Preferably above 700

For Used Bike Loans:

• Age: Often 21-65 years
• Income: Might require slightly higher income (₹15,000-₹20,000 per month)
• Credit Score: Generally, needs to be higher, often above 750.

Disclaimer: Please note that this is a generic information and may vary across banks. Please contact your bank for better clarity.

Documents Required

For New Bikes:

• Standard KYC documents
• Income proof
• Bank statements

Additional Documents for Used Bikes:

• RC book of the vehicle
• Insurance documents
• NOC from the previous owner

Disclaimer: Please note that this is a generic information and may vary across banks. Please contact your bank for better clarity.

Loan Options: Financing Sources

Various institutions offer two-wheeler loans:

1. Banks (public and private sector)

2. Non-Banking Financial Companies (NBFCs)

3. Manufacturer-tied financiers

Choosing the Right Lender

When selecting a lender, it's important to consider several key factors. First and foremost, compare the interest rates and processing fees offered by different lenders to ensure you're getting the most competitive terms. Additionally, be sure to check for any hidden charges that could impact the overall cost of the loan. 

Factors Influencing Loan Approval

Loan approval relies on numerous factors, including the applicant's credit score and history, income stability, existing debts and liabilities, as well as the age and condition of the bike in the case of used bikes. Lenders carefully evaluate these criteria to assess the borrower's creditworthiness and the risk associated with the loan. 

The applicant's credit score and credit history provide insights into their past financial behaviour and ability to manage debt. Stable and sufficient income is also a crucial factor, as it demonstrates the borrower's capacity to make timely loan payments. 

How to Improve Your Chances of Two-Wheeler Loan Approval

To enhance your loan approval:

• Maintain a good credit score
• Clear existing debts before applying
• Choose a bike that fits your budget
• Provide all required documents accurately

Long-term Financial Implications

Considering the long-term impact of your choice, there are several factors to weigh in. While new bikes often come with warranties and lower maintenance costs initially, used bikes may require more frequent repairs. Additionally, insurance costs are typically higher for new bikes. It's important to carefully evaluate these aspects to make an informed decision that aligns with your long-term goals and budget.

Resale Value Considerations

Factor in future resale value:

1. New bikes depreciate faster in the first few years.

2. Used bikes may have already undergone significant depreciation

3. Popular models tend to retain value better, regardless of age.

Making the Right Choice

To decide between a new and used bike loan, you should first assess your budget and long-term financial goals. This will help you determine how much you can comfortably afford to spend on a bike loan. Next, consider your riding needs and preferences, such as the type of terrain you'll be navigating and the features you desire in a bike. 

Evaluating the total cost of ownership, including loan interest, is also crucial to make an informed decision. Finally, factor in your comfort with vehicle maintenance, as a used bike may require more upkeep than a new one.