If you are planning to get a two-wheeler loan, it is important to look at all the aspects of the loan. Interest rate tends to be the deciding factor for a lot of borrowers. Loan tenure is also crucial as it directly affects the interest rate and EMI. In this article, we will cover various topics including the pros and cons of short-term and long-term bike loans and which loan tenure you should choose while availing a bike loan in India.

What Is a Loan Tenure?

Loan tenure is the time period sanctioned to the borrower to repay the loan amount he/she had taken from the bank or financial institution. Typically, two-wheeler loans, personal loans, etc have a shorter tenure in comparison to something like a home loan.

There are two types of loan tenures, namely short-term loans and long-term loans.

Short-term loans: This type of loan has a repayment tenure of 2 years or less. It best suits individuals who are in need of emergency funds. Usually, they are unsecured loans and therefore do not require any collateral. These loans are disbursed quickly and with very minimal documentation. Since the tenures of short-term loans are less, the interest rate tends to be high.

Long-term loans: These loans have a repayment tenure of 2-5 years. These loans work well for individuals who require a loan to fund their long-term goals and need a higher amount. Collateral may or may not be required for these loans and it depends on the discretion of the bank or financial institutions. The interest rate for long-term loans is lesser than that of short-term loans.

Pros and Cons Of Longer Tenure and Shorter Tenure Loans

Both long-term loans and short-term loans have their own set of pros and cons. Therefore, it is important to weigh the advantages and disadvantages before deciding which type of loan to choose.

Shorter Tenure

Pros Cons
Minimal eligibility requirement: The eligibility criteria is less stringent for short-term loans and most of the lenders do not undertake a strict background check. Therefore, these loans are granted easily.

 

 Higher EMI: The shorter the loan tenure, the higher the interest rate. This results in the EMIs being higher for short-term loans. These EMIs, sometimes can be multiple times higher compared to that of a long-term loan. You can use a bike loan EMI calculator to find out what the EMI amount would be.

 

 
Approval is quick:  The paperwork for short-term loans are minimal. You only need to fill a two-wheeler loan application and submit some documents like salary slip, KYC details, bank statement, etc. Since the norms for short-term loans are relaxed, lenders sanction the amount quickly in a couple of hours.

 

 Higher risk: It can be tempting to get a short-term loan to buy a two-wheeler but if your cash flow is tight, repaying the loan amount becomes a hassle. If you do not repay the loan in time, it lowers your credit score considerably.

 

 
Short-term liability: With shorter tenures, you can repay the loan amount in fewer EMIs than long-term loans. This means that you will be debt-free sooner.

 

 Higher interest rate: Short-terms loans have a higher rate of interest since the repayment period is less.

Longer Tenure

Pros Cons
Lesser EMI amount: Long-term loans usually have low interest rates. This means that the monthly instalments will also be less, as the loan amount is divided over a longer time period.

 

 Higher interest rate: The cumulative interest rate will be higher for a long-term loan since the tenure for the loan is longer. This will result in an overall higher interest payment.

 
Higher loan amount: You can get a higher loan amount with a long-term loan as there is a collateral backing it up.

 

 Prepayment penalty: Prepayment of long-term loans attracts a penalty which will eventually increase the total interest rate paid.

 
Helps with credit score: Building a good credit score needs time and discipline. If you are paying the EMIs on time, then a loan with a longer tenure can help you improve your credit score tremendously.

 

 More paperwork: Lenders usually require additional documents for loans with a long tenure.

Which Bike Loan Tenure Should You Choose?

The best two-wheeler loan tenure depends on your financial requirements and goals.  Please keep in mind that a long  tenure will lead to a low EMI amount but the number of EMIs will increase which will eventually result in higher interest. If you are sure you will not be able to pay the high EMIs of a short-term loan, then opt for a loan with a higher tenure. If you are looking for a small loan amount, choose a short-term loan and if the fund requirement is high, opt for the long-term loan. It is important to assess your financial situation and figure out the best course of action for yourself. In order to do this, you need to ask yourself the following questions:

  • How high of an EMI will you be able to afford?

  • Will you be able to pay the EMIs on time?

That being said, make sure to contact the bank/financial institution for the latest interest rate. There are various bike loan providers in the market, each one offering different benefits and features. Therefore, it is important to choose wisely depending on your financial requirements and affordability of the two-wheeler loan.