How is the interest rate on two-wheeler loans calculated?

Calculating the interest rate for a two-wheeler becomes straightforward if we use a loan calculator and follow the below steps.

• Step 1: Enter key information into the loan calculator, such as the loan amount (the cost of the two-wheeler), the loan period (how long you plan to repay), and your credit score.
• Step 2: The calculator considers a few key things to determine the interest rate for your two-wheeler loan. A higher credit score usually means you will get a lower interest rate. The amount you are borrowing and the duration of repayment can also usually affect the rate. Generally, borrowing more or choosing a longer repayment period may lead to a higher interest rate.
• Step 3: Using these inputs, the calculator applies the lending institution's interest rate formula. This involves the annual percentage rate (APR), which includes the interest and additional fees. The calculator might use simple or compound interest formulas to determine the total cost.
• Step 4: Within seconds, the loan calculator provides an estimated interest rate based on your inputs. It may also show your monthly instalments and the total interest payable over the loan period.
• Step 5: Using the information you gathered from the initial steps, you can compare different lending institutions to find the best interest rate for your two-wheeler loan.

When applying for a two-wheeler loan, it’s advisable to use a loan calculator to estimate your potential costs accurately and compare offers from various banks, lending institutions, and Non-banking Financial Companies (NBFCs). By understanding how your credit score, loan amount, and tenure affect your interest rate, you can make informed decisions that align with your financial goals.