What Are the Factors That Determine Two Wheeler Loan Interest Rate?

A two wheeler loan enables you to finance a motorcycle or a scooter easily. You can enjoy the convenience of owning a vehicle without spending a huge amount from your savings.

Additionally, you can obtain this loan at an attractive rate, which makes it a feasible funding option. But before you opt for this funding option, considering the factors that impact a two-wheeler loan interest rate is indispensable.

This write-up reveals the factors that can affect loan interest rates.

Two Wheeler Loan Interest Rates

Most lenders offer about 70% to 85% of the vehicle cost as the loan amount when applying for a two wheeler loan. You have to pay the rest of the amount from your pocket. This amount is known as the down payment.

When you pay a higher amount as a down payment, your loan amount gets reduced. This, in turn, helps to bring down the interest rate.

Given below are a few factors that affect your interest rates:

Factors That Affect Interest Rates

Income Source 

Your source of income and the amount you earn every month also impact your two-wheeler loan interest rate. 

Lenders consider this factor in determining a borrower’s ability to repay the loan. Having a stable source of income can get you a loan at a lower interest rate.

Credit Score

Your credit score or CIBIL score plays a crucial role in determining your loan interest rate. Before approving a loan, lenders access your CIBIL report to evaluate your financial behaviour. Your CIBIL report is a document that contains your credit score and reveals your financial history.

Lenders use this document to determine your creditworthiness. The higher your credit score, the more likely you will get a lower interest-rate loan.  

Note that, unlike other two-wheeler loan documents, you don’t need to submit your credit report. Your lender can access your report from the credit bureaus. The credit bureaus are the organisations responsible for maintaining such records.

Loan Tenure

The loan tenure refers to the time frame during which you repay your loan. Most people don’t associate this tenure with their loan’s interest rate. But it’s one of the essential factors that can affect the interest rate and the overall cost of your loan.

Your lender will likely offer you a higher interest rate when you opt for a long tenure. However, if you opt for a shorter tenure, you can expect to get a lower interest rate.

Another thing to remember is that when you opt for a longer tenure, you pay interest for a longer time. This increases the overall interest paid to repay the loan amount.

Vehicle Type

Your two wheeler loan interest rate is influenced by the vehicle you select to buy. This may sound surprising, but many lenders consider the type and model of the vehicle when determining your interest rate.

This happens because your vehicle acts as collateral when you obtain a two-wheeler loan. In other words, your lender considers the resale value of the model when offering the loan.

So, if you opt for a popular bike model, you can expect to obtain the loan at a lower rate. This is because the popular and best-selling bikes have a comparatively higher resale value.

How to Lower the Interest Rate on Your Two Wheeler Loan?

You must submit the required two-wheeler loan documents when submitting a two-wheeler loan application. Once your loan gets approved, you can know your interest rate. You can then negotiate with your lender for a lower interest rate.

But before that, you have to take some measures. Let’s take a look at some of the effective ways in which you can bring down your interest rate.

Maintain a High Credit Score

As stated above, a high credit score shows your creditworthiness. This enables you to approach lenders for a two-wheeler loan at a lower interest rate. Therefore, improving the cibil score is vital.

To maintain a good credit score:

  1. Always repay your credit card bills without delay.
  2. If you have any existing loan, ensure to pay the EMIs on time.
  3. Remember to keep checking your credit score to know if you are on the right track. 

Maintain a Low Debt-to-Income Ratio

The debt-to-income ratio refers to the percentage of your monthly income that you use to repay debt every month.

Lenders consider this ratio to identify your borrowing risk. If you have a lower debt-to-income ratio, it means you are maintaining a good balance between your income and debt.

Similarly, a higher debt-to-income ratio indicates the opposite. As such, you need to maintain a lower debt-to-income ratio to be able to negotiate for a lower interest rate.

Use Your Negotiation Skills

Your negotiation skill is another factor that can help you obtain a two-wheeler loan at a lower rate. Depending on your negotiation skills, your lender may agree to offer you the loan at a lower interest rate. Even if you don’t succeed, there’s no harm in trying.


As mentioned above, the interest rate on a two wheeler loan depends on several factors. Now that you know about them, you can take the right steps to avail the loan at a lower rate. Make sure to approach a credible lender for your loan, this will help you obtain the loan hassle-free.

Related Articles

Leave a Reply

Back to top button