If you want to purchase a bike, you have the option of choosing between a personal loan and a bike loan. Which is better, though? Let us look at the advantages and disadvantages of both to help you decide which will suit your requirements better. A bike loan is a secured loan. This means that your two-wheeler is collateral for the loan—it is a surety against you defaulting on the loan. This is why the lender will make you sign a set of transfer papers when you purchase the two-wheeler. If you default on the loan, the bank will sell the repossessed vehicle and recover its loss.
On the other hand, a personal loan is an unsecured loan. There is no collateral against the loan, which makes it a high-risk proposition for the lender. As such, lenders offer unsecured loans with minimum risk in lower principal amounts offered, higher interest rates, and shorter repayment tenures. The eligibility requirements for an unsecured loan are also stricter, and the approval process might be a little more complicated than the application process for a two-wheeler loan.
Coming back to bike loans – since the lender has invested in your vehicle, there will be hypothecation on the vehicle registration to the lender. Therefore, any transfer of ownership cannot happen without the approval of the lender as well. Suppose you wish to remove the hypothecation from the vehicle registration. In that case, you will need to pay off the bike loan first, then obtain a No Objection Certificate (NOC) from the lender, submit the NOC and relevant paperwork to the RTO. A fresh registration that recognizes you as the sole owner and with no hypothecation will be sent to the registered address. This can be a lengthy procedure. With the global pandemic shortening work hours for everyone from lenders to the RTOs, it can take an unusually long time.
If you intend to take a loan for a vehicle with a smaller amount or a shorter tenure, it might be wise to check your eligibility for a personal loan and check the EMIs and interest rates for each. Two-wheeler loan interest rates are usually published on lender websites, with tools like two-wheeler loan EMI calculators. If the difference in the EMIs isn’t much or if the total amount you need to repay doesn’t differ, you should pick the personal loan.
Not only will it be no work with the RTO once you clear the loan, but just in case you need to sell the vehicle for any reason, you can do so and use the money to pay off the personal loan, something you cannot do for a vehicular loan. If you intend to purchase a vehicle that doesn’t have a high price, you could apply for a personal loan for the entire amount you need to pay for the vehicle, thus eliminating the need for a down payment! You can then cover the cost of the vehicle in EMIs only.
If you intend to purchase a two-wheeler for which you want to pay low EMIs for a long tenure or if you intend to purchase a high-value two-wheeler, then a bike loan will make more sense for you (and, in many instances, be your only option). The lower interest rate will save you quite a bit of money in the time it takes for you to repay the loan, and money saved is never a bad thing!