If you have been thinking of purchasing a bike for a while, you are most likely to have considered going for a bike loan EMI option. Bike loans are a particularly favourite option to finance your bike purchase. EMIs are known to take away the burden of high initial investments and provide the benefit of spreading your expenditure over a long time. Bike loan EMIs may seem like the gateway to your long-time dream of owning a bike. However, have you considered the disadvantages of starting a bike loan EMI and is there a better alternative to buying a bike?
Let us take a quick look at some concerns regarding bike loan EMIs you need to consider before deciding to own a bike through the EMI route.
1. You pay more than the actual price
EMIs do help you overcome the disadvantage of investing a hefty amount upfront. However, this benefit comes at a very high cost. When you opt for a bike loan, you are essentially agreeing to pay a higher amount in exchange for paying small amounts over a long period. The principal amount coupled with the bike loan interest will end up costing you significantly higher than the actual cost of the vehicle.
Let us understand this with an example. A loan of ₹80,000 at an interest rate of 15% over two years will end up costing you upwards of ₹93,000. This is to say that you might be shelling out more than ₹10,000 extra even at a moderate interest rate. Some two-wheeler loan interest rates are exorbitant and will cause you to pay steep amounts in addition to the price of the bike.
2. EMIs take up a large part of your income
Monthly instalments may not seem like a burden at the time of the purchase. In combination with your regular monthly commitments, however, EMIs take up a notoriously large part of your average monthly spending. As a result, your buying capacity for the duration of the monthly instalments takes a serious hit. Particularly in urban areas, an average middle-class household may have to forego many other purchases to afford the high bike loan interest. Furthermore, you may also feel highly restricted to borrow for more important or essential reasons. Borrowing for consumption is not advisable for this very reason.
3. You are bound by EMIs for a long time
EMIs come with a commitment for a long time. The duration may range from 6 months to 36 months. The lower you want your EMI to be, the longer your commitment. Apart from being more expensive and burdensome, bike loan EMIs also severely affect your propensity to save. In simpler words, you are less likely to save for contingencies with an EMI. Therefore, EMIs may put you at a higher risk than you can imagine.
4. Additional hidden charges
Bike loans often entail additional charges that you may not be aware of. Every bike loan EMI includes a ‘processing fee’ which could range up to 2%. While the processing fee is charged upfront, there may be other hidden charges such as the late fees. Several financial institutions charge exorbitant amounts upon failure to pay the instalment within the specified time. These charges make owning a bike an expensive affair.
Some financial institutions may also use misleading terms to market their schemes. A popular example is “Zero-interest EMI schemes” which may lead you to believe that you are purchasing the bike on EMI without interest. However, the interest amount is often built into the price of the vehicle in such schemes. Anyone familiar with the popular adage “There ain’t no such thing as a free lunch” would understand that it is impossible to purchase a bike on EMI without interest. Therefore, there is an added responsibility on consumers to remain cautious and not fall prey to such enticing misnomers.
5. Add to your stress
Above all other disadvantages of starting an EMI, an important one to consider is the stress that comes with EMIs. With a fairly large financial commitment of a vehicle loan, you may often find yourself anxious about fulfilling the commitment every month. Imagine how stressful it would be if you had an EMI to pay but your salary was delayed by a week! It is important to carefully evaluate your finances before starting an EMI lest it will have a significant impact on your mental well-being.
Is there a better way?
It is natural to wonder if it is worth purchasing a bike at all, given all the downsides of bike loan EMIs. Fortunately, the news is not all bad! We are living in an era of change and we are witnessing a paradigm shift in the way people travel within cities. The introduction of self-drive rental bikes is a welcome change for everyone who wishes to free themselves from the clutches of EMIs. Bounce, a leading rental-bike service provider, offers several attractive options which give you all the benefits of owning a bike minus the EMIs! You can opt for long-term rentals or subscription plans. You may also use their flagship short-term rental service if you wish to pay only for what you use.
Owning a bike is a dream to many. Starting an EMI to purchase a bike may seem like a good option. However, it is important to remember that starting an EMI is only a short term solution which will cost you more in the long run. Self-drive rental bikes have changed the game for commuting in cities. With a slight change in the way we see things, it is possible to get all the benefits of an owned bike at lower costs through these rental services.