Two-Wheeler Loan Vs Personal Loan: Which Is Better?

When it comes to financing a new bike purchase, many find themselves torn between Two-Wheeler Loan and personal loan. Two-wheeler loans come with lower interest rates, however, you can use the funds only for bike purchase and not for personal financial requirements. But does that mean Two-Wheeler Loans are better than personal loans, especially when it comes to purchasing a bike/scooter? Let's find out.

Understanding The Different Loan Types

1. Two-Wheeler Loan 

A Two-Wheeler Loan offers financing for bike purchase. Generally, banks offer financing up to 80% to 95% of the on-road price of the vehicle. The rest of the money has to be paid up front, as a down payment. It's a secured loan, meaning your bike acts as a security/collateral till the loan is repaid. The interest rate is comparatively lower than personal loans. You can only use the loan amount to buy a two-wheeler vehicle.

2. Personal Loan

A personal loan is an unsecured loan that can be used for any financial requirements. There are no end-use restrictions for personal loans, meaning you can use the loan amount for anything - from paying your medical bills to buying a gadget. Since, it's an unsecured loan, the default risk is higher. Hence, banks levy a higher interest rate on personal loans.

Comparing Two-Wheeler Loan Vs Personal Loan

Let's dive into a detailed comparison of these loan types:

Key Considerations for Bike Loan Comparison

1. Interest Rates

Two-wheeler loans generally offer lower interest rates compared to personal loans. This is because the bike serves as collateral, reducing the lender's risk.

2. Loan Amount

While two-wheeler loans are limited to the vehicle's cost, personal loans often allow you to borrow larger amounts. 

3. Flexibility

Personal loans offer more flexibility in terms of usage. However, the flexibility comes at the expense of higher interest rates. If you include processing fees - an up front fee charged at the time of loan disbursement, the overall cost of personal loans becomes much higher compared to two-wheeler loans..

4. Credit Score Impact

For both loans, if you miss multiple EMIs, your credit score will be affected. If you want quick access to credit, it's essential no maintain a healthy credit score, typically above 750. So, never fail to pay your loan EMIs on time. 

Two-Wheeler Loan Vs Personal Loan: A Recap

Two-Wheeler Loan Benefits

• Lower interest rates
• Best for two-wheeler purchase
• Easier to obtain with a lower credit score
• Financing up to 95% of the on-road price

Personal Loan Benefits

• Flexibility in fund usage
• Potentially higher loan amounts
• No collateral required
• No prepayment penalties