Two-wheeler ownership adds to the comfort of everyday commute, allowing individuals to travel easily through heavy traffic and save time daily. It has thus almost become a necessity for many in India and is pushing more and more people to buy a new bike every day. Not to mention, commuting by bike is also one of the safest ways to travel in times like at the present, when social distancing is of the essence for a healthy life. Naturally, this has resulted in the increased demand for two-wheelers and consequently that of associated loans too. A bike loan allows you to purchase your desired bike model without needing to worry about the finances involved as the vehicle’s cost is deferred for payment through EMIs.
As secured loans, these advances are easily available against minimum eligibility requirements, with no minimum credit score requirement as a necessity. However, it would be wrong to assume that credit score assessment is not important when it comes to two-wheeler loan application approval. Let’s find out in detail how the credit score is linked to loan approval, how to avail of funding with a bad score, and such other pertinent details.
What Does a Good Credit Score Encompass for a Two-wheeler Loan?
When it comes to understanding credit score, it is a 3-digit number that credit bureaus assign to each individual and entity based on their past credit habits and financial discipline followed. It is a yardstick of measuring one’s creditworthiness and determines the risk involved with credit dealings for the individual, thus impacting loan decisions that lenders make.
In the case of a bike loan, a credits score is, however, not a necessary requirement as opposed to various unsecured loans. Thus, an individual need not necessarily hold the required score. However, for the sake of risk assessment, lenders seek a good credit score of not less than 700 to take into confidence the borrower’s certainty of repayment commitment.
What Does Bad Credit Score Entail for Bike Loans?
Any score under 700 is considered poor for the purpose of lending. In the case of two-wheeler loans, it applies the same too. Various reasons can be attributed to being the cause of the low credit scores of individuals. Following are some of them.
1. Excessive burden of loans and advances
When availing of loans and advances, one needs to be aware of the EMI liabilities that are being created. The excessive burden of such repayment liability indicates limited repayment capacity and the inability to avail of new credit. It is thus ideally desired that one’s monthly repayment liabilities in the form of loans and advances do not exceed 50% of his/her monthly income. In case the liabilities are high and strain one’s income significantly, it has a negative impact on the credit score.
2. Delay in EMI payments
Delayed payment of EMIs indicates undisciplined financing, which is negatively reflected on one’s credit history, amounting to a lower credit score. It is thus required that you make your EMI payments in a time period without any delays.
3. Untimely and incomplete credit card bill payments
Delayed payment of credit card bills, or such payment in part and not in full, also pulls down the credit score. It is thus advised to pay your credit card bills in time and in full every month.
Apart from these, one must not miss any bill payments and avoid sending multiple loan applications in a short duration, both of which impact the credit score negatively.
How to Avail a Two Wheeler Loan with Bad Credit Score?
Apart from working on the above-mentioned aspects, one can take a few necessary steps that should help avail a bike loan even with a bad credit score. Given below are some of them.
- Make higher down payment: Making higher down payment automatically brings down the loan amount you need to avail or are eligible for. In consequence, it improves one’s repayment capacity, thus allowing the lender to approve such loan amount easily. In the case of two wheeler loans, one can check his/her maximum bike loan eligibility and choose a loan amount lower than that, thus making a higher down payment to improve the chances of easier loan approval.
- Repay existing dues: Making repayment of existing dues allows you to free up your finances to accommodate new loans and advances. It thus works in favour of your availing the loan even though you carry a bad credit score as based on your improved repayment capacity, you can negotiate loan terms with the lender for convenient loan approval.
- Apply with a co-signor: Applying with a co-signor is one of the ways in which you can avail a bike loan even with a bad credit score. When doing so, make sure to choose an individual who holds a high credit score and has reasonable monthly income with minimum existing repayment liabilities for co-signing your loan application. Finding the right co-applicant and applying with him or her allows you to project an improved repayment capacity, thus enhancing your chances of convenient loan approval.
- Compare lenders before applying: You can also go for a market-wide comparison of available lenders to find out the right financial institution that keeps bike loan eligibility requirements simple with not much strain on credit score.
Alternatively, you can also opt for a higher rate on interest on your two-wheeler loan for coverage of the existing risk and to convince the lender for loan approval. It can help avail approval on the advance without much hassle.
When planning to avail of a bike loan, it is best to check out your financial standing and credit score in advance. With sufficient time in hand, you can work on improving your credit history and score with the necessary measures in place. Sometimes, a low score can also be a result of misrepresented records. If so, you can dispute such a record and back it with the necessary documentation for improvement of credit score in the long run. Apply for any loan only when the chances of your loan approval are high as a rejected loan application also amounts to a negative impact on your credit score.