What’s better, a credit card or a two-wheeler loan?

Introduction

Two-wheelers make you independent. They take away the need to stand in queues at the bus stops and make commuting in traffic easier.

With the variety of options two-wheelers offer, from gearless scooters to stylish sports bikes, two-wheelers are becoming a favourite for commuters of all demographics. 

As more people are stepping out of their homes to go to work post the lockdowns, the demand for two-wheelers has been on a rise. 

Two-wheelers constituted about 81% of the total automobile sales in FY21. 

People have several options while arranging finances for a bike. Let us understand the two most preferred financing options for buying a two-wheeler, a two-wheeler loan, and a credit card, and see which one is better. 

Credit cards

Credit cards are plastic cards that give the cardholder access to the credit limit set by the issuing bank. A credit cardholder can make a variety of purchases using the credit available to him and pay back the issuer only by the end of the billing cycle. High interest is applicable on the outstanding balance on the card beyond the billing date.

Two-wheeler loans 

Two-wheeler loans are secured loans offered by financial institutions for the purchase of a two-wheeler. They make buying a two-wheeler easier and the borrower can repay the loan in pre-decided instalments. The two-wheeler loan interest rate differs for different lenders. 

Credit card Vs Two-wheeler loan

Buyers may get confused between paying for the vehicle of their choice through a credit card and getting a two-wheeler loan. Here is a detailed comparison between the two to shed light on the same. 

• Interest rate and default charges

As stated above, the interest rate on a two-wheeler loan is different for all lenders. Still, the two-wheeler loan interest rate is lesser than the interest applicable on a credit card bill outstanding amount. Lenders like Muthoot Capital offer an attractive two-wheeler loan interest rate, starting only at 0.99% per annum. 

In contrast, the interest rate that credit card issuers charge on the outstanding credit card balance is exorbitant. Card issuers charge between 40% to 48% APR on unpaid credit card balances. If a borrower fails to pay the outstanding credit card bill due to some emergency, he may suffer a financial setback on the money he borrowed. 

• Additional benefits 

A bike loan is specially curated for the purchase of a two-wheeler. Therefore, it covers several other aspects of buying a bike, apart from the basic cost. It covers several other costs associated with the purchase of a bike, like the cost of registration of the bike and the cost of an insurance cover on the two-wheeler.

If a person chooses to buy a bike using his credit card, he does not get these benefits since credit card borrowings are general and can be used for various expenses. 

• Longer tenure

The payback period of a credit card is usually up to two years, while lenders like Muthoot Capital offer a flexible tenure on a bike loan that can extend up to four years. 

A longer tenure reduces the EMI burden of the borrower, and he will have to spend a lesser amount of money on the loan instalments every month. It can help in managing the monthly budgets for the person. 

• Better loan offer

Borrowers having a good score can negotiate with the lender for better loan terms and lower interest rates. They can also get a higher Loan to Value sanctioned from the lender, which would reduce the burden of downpayment for them. 

Muthoot Capital finances up to 100% of the on-road price of the bike. The documentation process at Muthoot Capital is easy, and the loans are disbursed faster.  

• Amount of loan

These days, bikes can cost lakhs. One may not have such a high limit on their credit card and may have to compromise on the bike and model due to a lack of funds in such a case.  

On the other hand, if the borrower meets the eligibility criteria of the lender, he can get a high amount of loan to finance the bike of his dreams. 

One can think of getting a bike on a credit card if he can pay the borrowed amount soon. Else, he would have to pay heavy charges on the credit card bill. A bike loan is available at a very low-interest rate and with flexible repayment terms. Muthoot Capital offers two-wheeler loans through multiple schemes designed to meet the needs of different borrowers.