Advantage and disadvantages of bike on installments

Motorbikes are the most common mode of transport in Pakistan. Compared to full cash payment, people prefer to buy motorbikes on installments due to the insufficiency of funds. A bike installment scheme or loan makes buying a bike easy, even if you don’t have the money on hand for an expensive bike. A bike installment scheme differs from a line of credit. The installment scheme means paying a fixed amount along with a certain markup at the start of every month until the entire amount is paid. Whereas a line of credit allows you to pay down the loan and continue to use it as often as your balance allows. Despite being convenient, there are several problems with installment loans.

The first problem that every potential buyer faces is during the documentation of the bike. The company or a bank before allocating a loan makes sure their revenue is in safe hands. The general eligibility criterion for installment schemes offered by most of the companies is extremely demanding. For instance, the applicant must be living at the address mentioned for more than one (1) year. Monthly net revenue of the applicant must be 4 times of monthly installment in case applicant owns a residence.

Monthly net revenue of the applicant must be 6 times of monthly installment in case applicant is living in a rented place. This shows that applying for an installment scheme: you will have to be bound of all the above-mentioned statement. However, various local installment ventures offer bikes on one page documentation, but they also require the presence of 2 credible introducers.

The main problem however arises when a buyer it unable to pay his monthly installments on time. a delay of a few days results in fines of around Rs.100 a day and if the payment is delayed by whole month, recovery officers from those lending organizations start stalking the buyer and come to his house. Due to variable economic conditions, it is not that easy to maintain a steady source of revenue and it often happens that people are unable to pay according to schedule.

Most people end up with their installment scheme and their bike in trouble. There is a fixed amount as installment that is to be paid each month; if an installment is delayed the owner receives a warning notice from the company. If another installment is overdue then the motorbike is seized by the company and the owner of the vehicle is arrested with all the paid installments washed out. If someone is unable to pay an installment every month, they should think twice before applying for a bike installment scheme.

Another aspect of getting motorbikes on installments is that unlike western countries, bikes are not insured either by the buyer or by the lender. In addition, insurance companies also do not offer any such insurance policies. So, even if the bike is lost in accident or theft, there is no way for the borrower to get out of the fix and he still has to repay the installments, no matter what.

Lastly, the interest on every bike ranges from 30% to 50% that may also go higher if the repayment plan is extended. This is the biggest drawback of getting bikes on installments that it increases the cost of the bike by manifolds.