When you apply for bike finance, your credit rating is one of the most crucial factors lenders use to determine your credibility. This 3-digit numerical expression ranging from 300 to 900 represents your credit history. The closer you are to 900, the better your chances of getting the best loan deal. On the other hand, a lower credit score makes finance more challenging to access.
Your credit rating gives the bike loan provider an insight into your past credit behaviour. Loan companies use this number to decide your bike loan eligibility, loan amount, LTV ratio, interest rate, and repayment tenure. Hence, improving your credit score is imperative when applying for a two-wheeler loan. Here are a few simple measures to improve your credit score and obtain an improved bike loan plan.
- Identify and Dispute Errors in Your Credit Report
Sometimes, the credit score may drop due to mistakes or incomplete information in the credit report. Before taking further steps, request and check your latest credit report to ensure every detail is accurate and up-to-date.
All credit bureaus will provide you with one credit report for free in a year. Providing any missing information or correcting any errors will instantly boost your credit score. Moreover, an accurate profile improves your eligibility for bike finance, improving your chances of getting a loan. However, remember, reviewing the credit report and disputing errors in it may take some time.
- Pay Off Outstanding Debts
Reducing your debt-to-income ratio is a crucial factor when trying to improve your credit score. A high outstanding balance will hold down your credit rating, hurting your eligibility for a new bike loan. Therefore, paying off outstanding debt is an efficient way to enhance your credit rating. That is because it demonstrates responsible repayment habits, increasing your repayment capacity.
- Minimise Your Credit Utilisation Ratio
If you are a credit card user, your issuer must have assigned you a credit limit to spend each month using the card. The credit utilisation ratio is the percentage of the available credit limit you spend. For instance, if your credit limit is Rs 1 Lakh and you spend Rs 50,000 using the card, your credit utilisation ratio is 50%. A high credit utilisation ratio projects you as a credit-hungry borrower, restricting your eligibility for a bike loan.
A high CUR represents that you largely depend on credit to manage your finances. Such behaviour increases your chances of loan default or missed EMIs, making it a riskier proposition for the loan provider. Therefore, while trying to apply for bike finance, reduce your dependency on credit and ensure your CUR is at most 30%.
Focusing on your credit card usage is the most effective way to minimise your CUR. Paying your credit card bills in full each time further boosts your credit score and makes you eligible for a higher credit limit to reduce your CUR.
- Maintain Discipline With Repayments
Lending companies review your repayment history and habits when assessing your credit report. Those with an excellent record of prompt repayments get the best loan deals with low interest rates and easy terms and conditions. That is because a consistent repayment history shows you have good intentions to repay your debt on time, minimising the lender’s risk. Activate the e-mandate, set payment reminders, and give auto-debit instructions to ensure timely due payments.
- Avoid Multiple Applications in a Short Period
Getting a loan application rejected is stressful. You may make other loan applications to other lenders, hoping to get approval from at least one. However, refrain from implementing that strategy. Each time you apply for a loan, the lender pulls a hard inquiry on your credit report that reduces your credit score by a few points.
Although hard enquiries temporarily affect your credit score only by a few points, several hard enquiries within a short period can reduce the score significantly. Besides, multiple frequent applications demonstrate credit-hungry behaviour, showing an inability to control and manage the finances. Such a scenario projects you as a high-risk borrower, reducing your chances of getting bike finance when required.
The best way to move forward in such circumstances is to understand the reason for your loan rejection. Accordingly, take time to resolve the issue, improve your eligibility, and re-apply with a better chance of approval.
- Opt for a Convenient Repayment Plan
Your DTI ratio is a crucial factor in determining your two-wheeler loan eligibility. If higher than 30-40%, borrowing a new bike loan may stress your finances and make timely repayments difficult to manage. A lower DTI ratio indicates easier debt management, making prompt repayments easier, thus improving your eligibility and credit rating.
Managing repayments on time frees up your funds to take another loan. Opting for a longer tenure is the best way to reduce your EMIs and make them more manageable. A loan calculator for bike will help you choose a loan term with easily affordable EMIs. The longer the tenure, the easier the EMIs. However, it will increase the total interest you must pay for the loan.
- Bring a Guarantor On Board
When looking for a bike loan, check if your lender allows you to apply with a co-borrower or co-signer. A co-signer takes the responsibility of repaying the loan in case you default. At the same time, a co-borrower also gets access to the loan amount while sharing the repayment burden.
In both instances, the co-applicants credit score extends your eligibility, improving your chances of getting easier approval. However, ensure that the other person you add to the loan application has a decent credit score.
With these tips and tricks, you can enhance your credit score and obtain a better loan offer. When looking for bike finance, be disciplined and consistent in improving your credit score. However, it will require perseverance and commitment. Once achieved, apply for a bike loan to finance up to 95% of your desired bike’s cost and repay it at attractive interest rates.
