Should you finance your two-wheeler?

While credit participation is relatively low in two-wheelers as compared to four-wheelers, taking a loan can be beneficial in the long term.

Two-wheelers are the most popular mode of personal transportation chosen by the common man in India. Reasons are affordability, easy navigation through traffic, low cost of maintenance and servicing. According to certain reports, the average time spent by a person on a two-wheeler to reach a destination is almost one-third that of a four-wheeler (in our congested metro cities).

There are broadly two kinds of two-wheeler users in India: the commuter buyer who needs a two-wheeler to travel from point A to B (the choice here usually is 100-150cc engine capacity), and the aspirational buyer who has an intense desire to own a two-wheeler not just to commute but also to flaunt or simply feel good (150cc and above).

Due to the pandemic and social distancing norms, a large section of the population has shifted to two-wheelers from public transport. But while buying two-wheelers, new or old, credit participation is relatively low as compared to four-wheelers. Should you finance it or should you pay the entire price upfront? Here we discuss that choosing an EMI or taking a loan is like a cherry on top if you have been planning to buy a dream two-wheeler. The reasons are:

Purchasing power increases: Since the full payment need not be made at the time of buying the two-wheeler, the purchasing power of the buyer increases, giving her an opportunity to choose the best bike in the market as she has additional money to spend to be paid in instalments.

Acts as a financial relief: Paying the full amount upfront can literally burn a hole in your pocket as your savings may be used up. Unforeseen contingencies can happen at any time. On the contrary, opting for low interest rates and EMI can save you some money that could be utilised during emergency.

Low interest rates: Banks and NBFCs (non-banking financial companies) are competing against each other to offer reasonable interest rates. Rates may start from 7%, going up to 18% and above, depending on the tenure you choose (the ideal tenure is two years). Keep in mind that two-wheeler interest rates are comparatively lower than personal loans.

Inculcate a habit of savings: Since you know you have taken a loan, you would be required to keep a portion of your salary towards meeting EMIs, thus inculcating a habit of savings; these savings can be invested in areas like stocks.

Instant loan approval: Waiting in queues to get a loan approved and the tiring process of document submission are reasons why people hesitate to take loans for vehicles. But there are a many start-ups and banks that accept applications and documents online, making it easier and stress-free for buyers. If you meet the eligibility criteria set by banks and NBFCs, plus a good credit profile, your loan can be disbursed within a few hours from the time of application.

Tax benefits: If you are self-employed, you can enjoy tax benefits in the form of tax-deductible interest. Buying a two-wheeler in the name of your company can save you money on fuel, insurance and even maintenance as these can be shown as deductibles from the profit of the company.

Author: Sumit Chhazed, co-founder, OTO Capital

Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.

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