Taking a two-wheeler loan helps you buy your dream bike or scooter without having to pay the full amount upfront. However, paying interest on the loan over several years can get expensive. If you have the funds, you may want to prepay two-wheeler loan to save on interest costs. Here's a step-by-step guide on how to prepay your two-wheeler loan.
Should You Prepay a Bike Loan?
Before deciding to prepay two-wheeler loan, consider the following:
- Interest savings: Prepaying reduces the interest you pay over the lifetime of the loan, which can save you a significant amount overall.
- Loan tenure: Prepaying helps you close the loan faster. Instead of paying EMIs for 3-5 years, you can repay it in 1-2 years.
- Affordability: Only prepay if you have surplus funds and are sure you won't need that money for other goals. Don't compromise your other financial responsibilities.
- Prepayment charges: Some banks and NBFCs may charge 2-5%* of the outstanding amount as prepayment fees. Factor this in before deciding to prepay.
- Future plans: If you need a loan for higher expenses like a home or education in the near future, it's better to accumulate funds rather than prepaying your two-wheeler loan.
If you take these factors into account and find two-wheeler loan prepayment beneficial, go ahead. Else, continue with your EMIs as scheduled.
What is the Procedure for the Prepayment of a Bike Loan?
A two-wheeler loan prepayment can help you save substantially on interest costs and become debt-free faster.
However, before you decide to prepay, there are some important steps to be taken to smoothly process your request. The steps to prepay two-wheeler loan are discussed below:
1. Check for Any Lock-in Period
The first thing to check is if your loan agreement has any lock-in period clause for prepayment. Most two-wheeler loans do not have a minimum lock-in, which means you can prepay anytime without penalties.
Some loan providers may have a lock-in of 6 months* or 1 year*. In such cases, you can only prepay after the lock-in period without any charges. If you make prepayments during the lock-in, you may be charged a penalty.
Carefully read through the loan agreement or check with your financial institution to see if there is a lock-in applicable to your loan. Once the lock-in expires, or if there is no lock-in at all, you can proceed with prepaying as per your plan.
2. Call Your Loan Provider’s Customer Care
The next step is to get complete clarity on the prepayment process by calling the customer care centre of your financial institution. Explain that you wish to prepay your two-wheeler loan.
Ask the representative to explain the exact procedure, any forms to be submitted, the required documents, the notice period for intimation, applicable prepayment charges, and other necessary details. They will guide you through the step-by-step process.
Make a note of all the instructions shared by the customer care executive for a smooth prepayment process. Having complete information beforehand saves time and unnecessary hassles later.
3. Check Applicable Prepayment Charges
A key point of consideration is the prepayment or foreclosure charges levied by your financial institution. Most financial institutions charge 2-5%* of the outstanding principal as a penalty if you close the loan before the tenure.
Now, some lenders allow foreclosure without any charges. When you call customer care, specifically enquire about prepayment penalties and under what circumstances are they applicable.
If the charges are high, continuing your EMI may be better than prepaying. Factor this into your calculations before making a decision.
4. Acknowledge the Confirmation Mail
Once you inform your loan provider about your decision to prepay, they will send a confirmation email with all the details—the process to be followed, the total closure amount, the required documents, etc.
Please review this email carefully and acknowledge that you have understood its contents and agreed to them. If necessary, ask for clarification. Following the due procedure in the email will smooth the prepayment process.
5. Make the Prepayment
On the predetermined date, visit your financial institution’s branch with the full loan closure amount as a Demand Draft or cheque. Submit this along with the documents mentioned in the email, such as KYC proofs, NOC from the guarantor if applicable, prepayment form, etc.
Get an acknowledgement receipt for your prepayment. If paying in cash, carry the exact amount. Once the payment is processed, ask for a loan closure statement with a 'No Dues Certificate'.
6. Get Notifications on Loan Closure
After prepaying, you will receive messages and emails confirming receipt of the payment and closure of your two-wheeler loan account. The RTO will also be notified to change the vehicle ownership back to your name in the records.
After a few days, follow up with your financial institution to collect your original RC book and other documents submitted when you took out the loan. Check that they have notified the credit bureaus about your loan foreclosure
7. Collect NOC Certificate
Once the loan closure formalities are completed, collect a No Objection Certificate (NOC) from your financial institution stating that they have no objections towards you prepaying and closing the two-wheeler loan account.
This NOC shows that you have dutifully repaid your past loan, which is useful for future loan or credit card applications. Keep this certificate safe as proof.
Disclaimer: Please note that the above-mentioned steps to foreclose or prepay a two-wheeler loan can differ with loan providers and their policies. Please check with your financial institution for the exact procedure of loan prepayment before proceeding.
Conclusion
Two-wheeler loan prepayment helps you become debt-free faster and save substantially on interest costs. Review your finances, loan details, and policies before deciding to prepay. Arrange for the amount, complete documentation, and inform your financial institution. With some planning, you can accelerate your loan repayment and achieve financial freedom.
