Business

Two Wheeler Loan in Indore: Interest Rate Tyes on Bike EMI

3 Mins read

If you have been thinking about buying a bike in the future, however, do not have the funds to do the same, a two-wheeler loan in Indore might help. With a bike loan, you may buy your preferred bike and repay the loan in equal monthly installments without having to use up all of your savings.

Although unsecured loans are an excellent option to finance sudden financial needs, few people are aware that unsecured loans have higher interest rates than secured loans. Nevertheless, because it offers speedy approval and prompt disbursals, it is regarded as providing immediate financial aid.

In India, all significant financial institutions offer bike loans. Several bike manufacturing businesses, both native and foreign, are based in India. Numerous international manufacturers have entered the Indian automotive market as a result of the high demand for two-wheelers. A few domestic Indian companies to name include Hero bikes, among others.

Interest is a part of the loan amount over and above the principal amount repaid to the lending institution. The annual percentage rate, commonly known as interest rate, is a percentage of the loan that is determined each year (APR). Hence, for example, if you buy a Hero bike, each hero bike EMI repayment includes a portion of the principal amount and a portion of the interest component.

Table of Contents

Different Ways Interest is Calculated

There are two ways to calculate interest on a two-wheeler loan in Indore – Flat rate and reducing rate.

Flat Interest Rate

Under a flat interest rate, the rate of interest remains unchanged throughout the loan repayment tenure. As a result, the interest portion of the EMI is determined by using the total amount of the initial loan borrowed. In other words, interest is calculated throughout the loan on the original loan amount.

Therefore, even if you make hero bike EMI payments, which combine interest and principal repayment, the interest is always calculated using the initial loan amount at the rate offered. A flat rate of interest typically results in increased payback obligations because this interest component does not decrease with repayment.

Hence, the formula to calculate the interest rate is as follows

(Loan Principal*Total Loan Tenure*Interest Rate Per Annum)/Total Number of Instalments

Reducing Interest Rates

Under a reducing interest rate, sometimes referred to as a diminishing or decreasing balance interest rate, the interest component is calculated using the amount of the outstanding loan. The outstanding amount fluctuates with each EMI paid, so the interest rate likewise does.

The outstanding loan balance is used to calculate interest, as opposed to the flat-rate technique, which does it at the end of each month. As a result, your loan balance is decreased with each hero bike EMI, and interest is computed on the lower loan balance, which lowers your overall interest expense compared to using the flat rate.

The formula given below is used to determine interest under a reducing rate:

Interest Payable = Outstanding Loan Amount* Interest Rate

Difference between Flat Rate and Reducing Rate

Basis of calculation: The total loan amount is used to compute interest under the Flat Rate. On the other hand, under the reducing rate, interest is computed based on the amount of the outstanding loan.

Effective interest rate: An effective interest rate is initially provided by the interest rate computation under a Reducing rate. The computations under the flat-rate method, in contrast, offer a higher effective interest rate over the repayment period.

Rate comparison: The flat rate calculation approach often fixes interest rates at a lower percentage than declining interest rates. But before you make a decision, you should consider the long-term repercussions as this can be deceptive.

The simplicity of calculation: The calculation of interest under a flat rate is simpler and less confusing than the calculation of interest under a reducing Rate.

Conclusion

When applying for a two-wheeler loan in Indore, always check the method of the interest rate calculation. Typically, financial companies give decreasing rates. Some smaller NBFCs and loan app providers, however, might provide flat rates. So, whenever making a decision, always compare things similarly (flat to flat and reducing to reducing).

Therefore, be sure to keep these things in mind before applying for a loan and ask your lender which form of interest computation they employ.

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