Loans
Tips to Choose Your Two Wheeler Loan Tenure
3 min read
•
Dec 17, 2019
Are you ready to take a loan to buy your own two-wheeler? Many people just consider the EMI amount before deciding on taking the loan. However, the smarter ones would want to save on interest and reduce the total cost of the loan. For this, you should make some smart decisions before taking the loan.
The most important aspects to look at are the principal and the tenure. Principal is the total loan amount and tenure is simply the duration in which you will repay the loan like 2 years or 3 years.
Usually, a bike loan tenure ranges between 1 to 5 years. Choosing the correct loan tenure could help you save a lot of money. Let’s take an example.
If you take a loan of Rs.1 lakh to buy your bike, at an interest rate of 10% p.a. and 1% processing fee, the following is how much you will pay for different tenures:
| Tenure | 1 year | 2 years | 3 years | 4 years | 5 years |
|---|---|---|---|---|---|
| EMI | Rs.8,792 | Rs.4,614 | Rs.3,227 | Rs.2,536 | Rs.2,125 |
| Total interest payable | Rs.5,499 | Rs.10,748 | Rs.16,162 | Rs.21,740 | Rs.27,482 |
| Total processing fee | Rs.1,000 | Rs.1,000 | Rs.1,000 | Rs.1,000 | Rs.1,000 |
| Total cost of the loan | Rs.1,06,499 | Rs.1,11,748 | Rs.1,17,162 | Rs.1,22,740 | Rs.1,28,482 |
From the above, we can see if you take a loan for one year, your EMI will be high, but you will only pay Rs.5,499 in interest. By simply extending the tenure by one more year, your EMI will reduce by half, but you will also pay double the interest back.
On the other hand, if you choose a tenure of 5 years, your EMI will be less than one-fourth but you will end up paying Rs.27,482 in interest.
To do such calculations on your own, you can use two-wheeler loan EMI calculator. You simply need to enter your loan amount, tenure and interest rate, and click on ‘Submit’. This is very helpful in determining what loan amount and which tenure to choose.
What is the best two-wheeler loan tenure?
There is no ideal tenure for everyone. For each person, the best tenure will differ. If you can afford to pay Rs.8,792 every month towards the EMI, then the ideal tenure would be one year as you will save plenty of money on interest. However, if you cannot pay such a high EMI, then the best tenure would be 4 years. The difference in EMI between 4 years and 5 years is only Rs.411. But the difference in the total interest payable is Rs.5,742. So, the longest tenure should be chosen only if you are under extreme financial constraints. But if you can make a few sacrifices and pay Rs.411 more per month, you will eventually save Rs.5,742!Now that you know how to choose the right tenure for you, applying for a two-wheeler loan can be done in a few simple steps through AU Small Finance Bank, where banking and all its processes are made simple for you!
Learn more about two wheeler insurance from AU Small Finance Bank
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