Owning a two-wheeler gives you the freedom of managing your own commute without having to rely on public transportation. You can skip traffic jams and congested roads easily with a bike. However, the journey to becoming a bike owner is not an easy one. One of the challenges you will face is financing, which can be solved with the help of a loan.
However, to be eligible for this loan, you need to meet certain parameters. Your credit score plays a huge role in determining your eligibility for getting a two wheeler loan. If you are worried about your credit score requirements, keep reading this article to discover what is the ideal score and how to maintain it.
What is the Required Credit Score for Getting a Bike Loan?
A credit score is one of the most important factors taken into consideration when lenders offer you a loan. Typically, loan providers look for a good credit score of about 700-750 and above to offer loans. Those with a score between 650-700 might be considered and given the required credit on the basis of some other factors. However, any score below 650 is likely to be rejected or lenders may alternatively sanction the loan at a higher interest rate.
Your credit score ranges between 300 and 900. It is calculated by credit bureaus on the basis of your repayment history and noted in your credit report. Lenders usually conduct a hard inquiry, where they collect this information from the credit bureaus like TransUnion CIBIL, to check your credit reports. This helps them understand your creditworthiness and repayment capabilities.
How Does the CIBIL Score Affect Your Bike Loan?
A high credit score has a massive impact on a few aspects of your loan like the processing fee and down payments.
A higher credit score proves your creditworthiness to the lender who then offers you a larger loan amount. This value can be even as high as to enable you to completely finance your bike purchase as per the vehicle’s on-road value. This means that the initial down payment that you are liable to pay can also be lowered drastically.
When your credit score is high, it not only has an impact on your bike loan interest rate, but also, on other associated charges. This is especially true in the case of processing fees. A higher credit score can get you a loan on much more favorable terms, including lower charges on the processing of your loan. This helps reduce the total cost of your two-wheeler loan.
How to Improve Your Credit Score?
If your credit score is not up to the mark, here are some tricks you can utilise to increase your credit score.
The purpose of checking your credit score is to ascertain whether you can repay the amount borrowed on time. Your credit score is calculated on the basis of your repayment history. Every time you default on a payment, your credit score is likely to decline. Hence, it is important to make sure that you are making timely repayments for your existing credit cards and loans. This will help build your credit score over time.
As important as timely repayments are to your credit score, what happens if they are not recorded correctly? While a credit bureau does take care of recording all your recent credit information, errors are bound to happen. Hence, it is important to regularly check your credit reports and ensure that all your repayments and other personal and credit-related details are recorded accurately. This helps the lender get the correct information when verifying your details.
- Avoid Multiple Applications
Every time a lender or credit card provider contacts the credit bureau, asking for your credit information, it leads to a ‘hard inquiry’. Multiple hard inquiries can lead to a reduction in your overall credit score. Hence, it is important to apply for a loan only after you have thoroughly researched and compared the offers of different lenders.
How to Get a Bike Loan With a Low Credit Score?
Building your credit score can take years, making you wait for a long time before you can purchase your dream bike. Here are a few ways you can get a two-wheeler loan even with a low credit score.
When getting a bike loan, you are required to pay a nominal amount, which is about 5% to 10% of your bike’s value, as a down payment. This amount is usually paid by you and is not considered a part of your loan. However, with a lower credit score, you may not be sanctioned a high loan amount.
Paying a larger amount as a down payment helps reduce your required loan amount. This also reduces the loan tenure and helps save money on interest, as the amount borrowed is lower.
There are multiple instances which may have resulted in a drop in your credit score due to defaulting. Lenders are now considering other criteria like your employment history and income to determine your creditworthiness as well.
However, in such cases, the offered bike loan interest rate might be on the higher side. This is because one of the most important indicators of your repayment capabilities, your credit score, is low.
A co-signer is a person who is considered a guarantor and holds equal responsibility for your bike loan. If your credit score is bad, you can always have another individual with a good credit score become your co-signer.
During the approval process, the credit score of the co-signer is taken into consideration by the loan provider. With this, you can get the required loan amount, even with a low credit score.
After having discussed how to build your credit score and how to get a two-wheeler loan with a low credit score, it is time to take action! Put this knowledge to the test and purchase the bike of your dreams.
