How Can I Foreclose My Two-Wheeler Loan?

Two-Wheeler Loan
Two-Wheeler Loan

Meaning of foreclosure

When you borrow money from a lender, there are certain terms and conditions attached to such a loan. One of the terms of the loan would be the duration within which the loan must be repaid.

If the borrower repays the loan before the expiration of such duration, then it is known as foreclosure of the loan. A loan is generally foreclosed to avoid paying interest amounts for a longer period and lifting the burden of the loan off their heads.

However, loan aggregators help you with the best repayment options for a good 5 years. Explore Buddy Loan in order to reap more benefit for a two-wheeler loan.

The process to foreclose two-wheeler loan

Two-Wheeler Loans are personal loans that are borrowed to purchase a two-wheeler. Following are the steps to be followed for foreclosing your two-wheeler loan:

  1. The borrower must request the financial institution for a foreclosure of the loan.
  2. Once the lender agrees to foreclose the loan, the borrower must carry his/her Identity proof, Cheque /DD for the loan amount to be foreclosed, and the loan account number.
  3. The borrower should request for all the documents relating to the two-wheeler that was given to the financial institution while the loan was granted.
  4. The borrower should pay the entire pending amount that needs to be paid to the lending institution, and then ask from a No Objection Certificate (NOC) from the lender.
  5. The borrower must visit the Registrar’s office and clear the loan on his/her two-wheeler to ensure the safe title. Additionally, a legal clearance certificate from a legal advisor is also suggested to be secured.
  6. The CIBIL score must be checked to ensure that it is updated.
  7. Lastly, the borrower must obtain the Final Loan Statement after the closure of the loan.

Consider the following before foreclosing your two-wheeler loan

  1. Some financial institutions may charge a penalty for foreclosing a loan. Ensure that your lender does not do so before you foreclose your loan.
  2. Foreclosing your loan could affect your credit scores.
  3. If you are planning to foreclose your loan due to a higher rate of interest, then you can consider redirecting the loan to another bank or lending institution that has a lower rate of interest.
  4. You can invest in other alternatives that would multiply your money if the rate of interest that you pay to the lender is not very high.
  5. If the duration of the loan just began, then it is better to foreclose if possible. However, if the duration of the loan is almost going to be completed, then it is not advisable to foreclose the loan.

EMI for a two-wheeler loan

The method to calculate EMI for a two-wheeler loan is no different from that of a personal loan. Two-wheeler loan comes under the category of a personal loan. All terms and conditions of a personal loan are also applicable for a two-wheeler loan except that the purpose of this personal loan is to buy a two-wheeler. Interest rates are also comparable to a regular personal loan.

EMI calculation formula

E = P x R x (1 + R) ^ n / (1 + R) ^ n – 1

Where P is the two-wheeler principal amount.

R is the rate of interest per month.

^ is to the power of

n is the loan tenure in months

EMI calculated for a bike loan

  • The total bike loan amount is taken.
  • The interest rate per annum is divided by 12 to get the interest rate per month.
  • The number of months in the loan tenure is taken. A 5-year loan period means 60 months.

Why use an auto loan calculator before taking a loan

  • A bike loan calculator calculates the EMI amount, which helps you decide whether or not to avail a two-wheeler loan.
  • If the EMI is more than 50% of the salary, consider reducing the loan amount by increasing down-payment or initial payment.

Eligibility criteria for a two-wheeler loan

  • The lower age limit is at least 18 years. In some cases, it is 21 years of age. The upper age limit is generally 65 years of age.
  • Gross total income requirement varies as per metro city. The average is Rs. 20000 per month for salaried individuals and for business owners or self-employed professionals.

Documents required

  • Proof of address. It could be in the form of AADHAR card, PAN card, passport, rental agreement, electricity bill, etc.
  • Income proof – salary certificates, ITR details of the past two years, Form 16, bank statement of the past six months, sale bills, business ownership title details.
  • Age proof – Voter’s ID, passport
  • Photographs – 2 passport size photographs

When not to take a two-wheeler loan

  • Sometimes when having a bad credit score, an application for a two-wheeler loan can get rejected, and the rejection is also mentioned in the credit report. To avoid this, don’t apply for a loan until the credit score is at a decent level.
  • Two-wheeler loans are expensive. If you already have a bike, consider selling the bike, and then thinking of purchasing a new one using a two-wheeler loan. Reducing your debt burden at all times makes logical sense.

Getting a two-wheeler loan…

First, check your expendable income. If, your expendable income cannot accumulate to a substantial amount to cover the expense of the bike loan within a couple of months, consider taking a two-wheeler loan. Buddy Loan, one of the financial aggregators have vivid option for loan tenures starting at an interest rate of 11.99% p.a. for a two-wheeler loan. You could explore more!

Calculate your EMI

  • Choose the bike you want to purchase.
  • Use the online EMI calculator to calculate your EMI
  • If the calculated EMI is within 50% of your salary, then consider taking the loan; otherwise, think twice.
  • A better option is to save money, make a substantial down-payment, and reduce the debt burden when taking a two-wheeler loan. This way, your EMI is well within 50% of your salary.

Check your loan eligibility

Most bank sites have a loan eligibility calculator online. Here you enter your loan requirement. Provide your details such as PAN number, salary details, tenure, etc. An SMS is sent to your registered mobile number, or an email is sent to your registered email ID with your eligibility details. The bank verifies your credit score, age at loan maturity, existing loans, cheque bounce details, etc. to calculate your eligible details.

Apply online

  • After getting your eligibility details, make an online application. Scanned and signed copies of PAN card, AADHAR card, and such KYC documents can be uploaded.
  • Provide details of the two-wheeler such as RTO location, type/make of the bike, year of manufacture, price of the bike, etc.
  • Applications are approved within 24 -48 hours. Money is disbursed in a maximum time-frame of 3 days.
  • In some cases, a bank representative can come to your office or home to take physical copies of the documents.

Difference between a two-wheeler loan and an auto loan

Both are the same; depending on the context, an auto loan can refer to car loans or four-wheeler loans only. However, even two-wheeler loans come under auto/automobile loans so they can be called auto loans too.

Features of two-wheeler loans

  • The loan amount ranges from Rs. 1000 to Rs. 15,00,000
  • Loan tenure is a minimum of 6 months to a maximum of 60 months
  • Interest rates starting at 11.99% p.a. can help you avail early
  • No-cost EMI options are available.
  • 100% of the cost of the purchase option is available.
  • Processing is easy and transparent. Constant updates are provided to the applicant.
  • Flexi EMI options allow applicants to choose their EMI instead of the bank choosing a set of EMI options for them. However, terms and conditions apply even in this process.

Tax exemption for a Two-Wheeler Loan

The Income Tax law in the country classifies this category of loans as a luxury. This means that a two-wheeler is not a necessity in India. Therefore, salaried people cannot avail tax exemptions on two-wheeler loans. However, business people can bracket a two-wheeler loan as a business expense and avail tax deductions on the same.

You can also get tax benefits if you use the personal loan for business purposes, subject to your ability to provide enough documents to show that the money has been utilized for that purpose only. Loan aggregators meet the right bill with the borrower’s profile. Topping these are the benefits you can avail from Buddy Loan

 Till the time the Indian government adjudicates two-wheeler loans as a necessity, tax rebates cannot be availed. However, there are cases when tax deduction can be claimed on bike finance.

• In Indian states like Goa, bike taxis are used to transport people. They are used for commercial business purposes in this context. Bike finance can be taken for purchasing a bike for commercial purposes, and the bike finance can be covered under tax benefits. The interest payment portion can be categorized as business expenses and tax exemption availed on the same.

• Some companies offer bike rental services. If bikes are taken on rent, and if the bike is used for commercial purposes, then tax deductions can be availed on the moped, bike, two-wheeler, etc.

• Food delivery is big business in India. Those who purchase bikes to support their careers as food delivery agents can claim tax exemptions on the interest portion of their bike loan repayment. This is because they are using their bikes for professional commercial purposes.

Bike loan tax exemption features for business owners

Self-employed individuals can claim tax benefits under the following heads:

•    Business expense – the interest portion of the bike auto loan can be exempt from tax. This is only if the two-wheeler is being used for business or commercial purposes.

•    Transportation cost – Under the business expense head, even petrol, fuel, maintenance charges can be projected for tax benefit.

•    Deprecation – Maintenance of the asset or the deprecation cost can be covered under tax deduction.

Points to note about bike vehicle loan tax exemption

• Only the IT assessing officer can determine if the bike is being used for business purposes or not.

• The business owner claiming tax benefits must have the bikes registered under their names.

• When filing ITR-4, the interest certificates given by the bank must be included.

Misuse of tax exemption on auto finance for two-wheeler is discouraged. It could attract penalties and even incur legal recourse depending on the seriousness of the case. Use as much information from banks, auto loan providers’ help desks to clear all doubts regarding tax rebates on bike finance.

Two-wheeler loan without a PAN card.

Among the documents required for two-wheeler finance, PAN card is a must. This document is only one among the many identify check documents. PAN card cannot be substituted by passport, driving license, company ID card, ration card, voters ID, a credit card with photo, etc.

Availing a loan through loan aggregators can suffice your financial needs with a PAN card. It is mandated that any loan is to be approved over PAN details. Moreover, Buddy Loan encourages the borrowers to keep their PAN card handy while applying for a loan. 

Address proof documents

The following address proof documents are required:

Electricity bill – Should have the name of the applicant. This means that the applicant has to be the house owner.

Gas Connection Bills – Will have the name of the applicant.

Sale Deed – Is a document that describes the proceeds of a sale. It includes the name of the purchaser and seller.  The purchaser is the borrower.

Property Purchase Document – Will have property purchase details. Similar to sale deed, but describing more of the purchase details.

LIC Policy – Will have the name of the policyholder. The policyholder is the borrower.

Income proof documents

The following are the income proof documents that are required:

• For salaried government or private company employees, their latest salary slip.

• For business owners, their latest Income Tax Return documents are required.

• Fees and allied charges for two-wheeler loans.

• The percentage of charge for processing the loan is 3% of the corpus of the loan.

• Charges for documentation are 3% of the corpus of the loan amount.

• Pre-payment charges vary. If foreclosed within six months, a pre-payment or foreclosure charge of 10% of the outstanding loan amount will apply.

• If foreclosure is after six months, 6% of the outstanding loan principal amount applies.

• Any foreclosure after two years of the commencement of a two-wheeler finance loan will attract only 3% of the loan outstanding.

• If an EMI is overdue, a charge of 2.5% on the outstanding EMI is levied. It is an accrued interest. Even if missed by one day, the charge is levied. Care has to take not to miss the payment.

• If a loan has been applied and cancelled after being approved, there are generally no loan cancellation fees levied.

• Two-wheeler loans come only in two categories – superbike loans and two-wheeler loans.

Two-wheeler auto finance is a very convenient way to get your dream bike at very affordable rates. The repayment tenure is flexible. Some banks allow borrowers to choose their EMI amount. It is only easier through a loan aggregator, Buddy Loan. Most applications are made online. A paperless process and a transparent one makes these loan products very convenient. So, decide on that dream bike and don’t delay any longer to start riding.

The minimum salary required to get a Two-Wheeler Loan

The minimum salary required to get a two-wheeler loan varies by bank. Some banks require Rs. 50,000 per year. Buddy Loan, being of the biggest loan aggregators offers two-wheeler loan if you draw a maximum salary of Rs. 20,000. But nowadays this is rare. Simply because the costs of two-wheelers are unlike, they were a decade ago. They have increased substantially. Call it inflation or technological progress, even bare minimum bikes are pricier than the bare minimum bikes available a decade ago.

Best bank to get a two-wheeler loan

The lowest interest rate is starting at 11.99% p.a. There are pros and cons to both. Generally, low interest rate bike loans require a slew of documents and a sound credit score. Very high interest rate bike loans may still be relaxed on the credit score part. So, it’s a trade-off.

No-cost EMI two-wheeler loan

There are a few banks that offer a no-cost EMI two-wheeler loan or bike loan. Usually, the cost involved is taken through processing fees. That’s the only profit these loans make. But given their attractive proposition, the number of people taking these loans makes up for the cost of capital.

Zero down-payment two-wheeler loan

Such bike loans finance the entire cost of purchase. These finance options are attractive to millions of people and are true, especially in the college going category. Down-payment is still expensive for certain people. Zero down-payment means owning the bike immediately, and only concentrating on paying the EMI.

Defaulting in two-wheeler loan

The same thing happens when a personal loan default. Reminders are sent. Notices could be sent. Legal action can be initiated. With the case of two-wheelers, the vehicle seized.

Superbike loans

All of them fall under bike loans. Superbikes are more expensive, yet they don’t enjoy any special category. They come under the ambit of bike loans.

Difference between NBFC and bank two-wheeler loans

No major difference. But still, the documents required could be more or less with either. Both are lending institutions. There could be variances in interest. There is no harm in considering a two-wheeler loan from either of them. Two-wheeler loans are transparent, easy to get, and can be foreclosed too. Now no need to wait to get going on that dream bike. A bike loan with bike insurance is all that is needed to fulfill one’s long cherished dream.