India is one of the largest two-wheeler markets in the world - which is not surprising considering the growing traffic on Indian roads. With increasing traffic, two-wheelers make daily travel slightly easy. To add to this, they are more affordable compared to four-wheelers which have made them quite popular in India. However, buying a bike is a major financial decision for many, especially for the middle class. Although it is very easy to buy a motorcycle by taking a loan, there are other alternatives, such as saving, that you must consider.
How can I save money to buy a bike?
For the current generation, saving money sounds like a huge task. Given the number of expenses they incur, they hardly end up saving. But saving isn't as difficult as it sounds. It is definitely a long process to get the things that you need, but it is worth it. Here are a few ways you could start saving money for the dream bike you want.
Reduce unnecessary expenses
The best way to start saving is to reduce your expenses. Only if you can end up spending less can you save. To cut down on unnecessary expenses, you need to first know where you are spending. So, it is important to make a note of all your expenses. Even if you are spending one rupee, note it down. After a month, analyze your expenses. See where you can trip the extra expenses. Once you start reducing your expenses, you will have enough to save.
Pro tip: Save first and spend later. Make sure you spend from what is left after saving.
Save in cash
One of the best ways to buy a bike is to use cash. Buying a bike in cash will give you a higher bargaining power. So, start setting aside some money every month from your salary. Save it in an envelope, slide it under your bed, or keep it in a bank locker. Make sure you are consistent with your saving and do not use the cash for anything else apart from buying your bike. Apart from saving regularly, save any bonus or gift money you receive for your bike; this way, you can reach your goal faster.
Save in Jupiter Pots
I’m sure you’ve saved money in physical piggy banks during your childhood. Even if you didn't, you must've come across a piggy bank at least once in your life. Jupiter Pots are similar to piggy banks but do so much more than just save money.
Jupiter Pots are intelligent piggy banks that can help you save money for your goal. You can rename the pot, set a target amount, and also set an auto-save facility. The best part is that you can earn interest on the money saved.
To start saving for your bike, you can create a pot on the Jupiter Money app. When creating a pot, you need to give a target amount and a target date. Once you create a pot, you can enable the auto-save option and select the frequency. The money will automatically get debited from your account and get deposited in your pot as per the frequency you set. For example, if you wish to save money for the bike every month, then on a particular date, the money will automatically get deposited into the pot from your bank account.
Once you reach the target amount, you can destroy the pot, and the money will be credited to your Jupiter account.
There is no lock-in for the pot until and unless you create a super pot. Hence you can withdraw the money anytime you want without paying any penalty. In case you create a super pot, it has a lock-in period in which you can withdraw money, but with a little fees as penalty.
Invest in mutual funds
Another alternative to saving is investing. In investing, you can earn a higher return than a savings account and fixed deposits. One of the best investment alternatives for short-term goals is mutual funds. There are several kinds of mutual funds, such as equity, debt and hybrid. Equity funds are best for long-term goals, and debt funds are best for short-term goals. Whereas hybrid funds are for medium-term goals.
As mentioned above, debt mutual funds are best for short-term goals. They offer higher returns than fixed deposits and are considerably less risky than equity funds. Debt funds also give predictable returns, making them ideal for conservative investors.
In debt funds, there are again several kinds of funds based on the investment duration. You will need around six months to two years to save up for a bike, and hence you can consider ultra-short duration and short-duration mutual funds. These funds are highly liquid and give better returns than fixed deposits. By investing a certain amount in these funds every month, you can easily reach your target on time and own a bike.
Is it better to save money for the bike, or should I take a loan?
The decision to save money or to take a loan depends entirely on your circumstances. If you are unable to wait to own your dream bike and you don’t have enough money saved up, a loan can be a better option for you. Alternatively, if you do not want to have the burden of a loan, then saving is a better option. Take a look at the pros and cons of each of these ways, which will help you decide.
Pros of buying a bike in cash
No stress of loan repayments: By saving and paying the money in full for the bike, you don't have to worry about EMIs (equated monthly instalments) or loan repayment. You will feel stress-free as there is no burden of any repayments after purchasing the bike.
No interest rate charged: By taking a loan, you end up paying more than what the bike actually costs in the form of interest. But by paying in full, you don’t have to worry about paying extra. Moreover, you can also get a discount for paying the amount in full.
Cons of buying a bike in cash
Liquidity crunch: If you are paying for the bike in full, you might face a liquidity crunch for a month or two after you purchase a bike. However, if you have saved enough before buying the bike, you won't face any funds shortage.
Pros of taking a loan to buy a bike
Cashflows: By taking a loan, you are splitting the cost over a period of time instead of bearing it all at once. This will leave you with a higher bank balance which can be used to fund other expenses. The salaried class can consider a loan and invest the money they saved for future use.
Enhances credit score: Two-wheeler loans have lower interest rates than car loans, so their EMIs are affordable. If you have a low credit score, a two-wheeler loan can help you improve it, provided you pay your EMIs on time.
Rewards and offers: Some showrooms tie up with banks to offer additional perks to their customers on loan-based purchases. Some of the rewards are free insurance for one year, or additional discount, full financing with zero down payment, or a discount on the next purchase. Such rewards can actually help you save some money.
Cons of taking a loan to buy a bike
EMI instalments increase burden: If you take a loan, the tension of paying EMI is high every month. If you miss even one EMI, your credit score can be affected, and the burden of the loan will increase. Moreover, monthly EMI deductions will end up leaving less cash for your regular expenses and also leaving less room for saving or investing.
Maintenance is not accounted for: When you take a loan, you are bound to pay EMIs. Remember that your EMIs don't cover maintenance, so in the months when you have to pay your maintenance and EMI, you might face a liquidity crunch due to additional expenses.
Based on the pros and cons of each, you can decide whether you should take a loan or save money before you buy a bike.
Hidden costs behind buying and owning a bike
Everyone thinks that the major cost one has to incur the price they have to pay while purchasing the bike. But no one accounts for these hidden charges that actually increase the total cost of the bike.
Insurance: Taking bike insurance is no more optional. It is mandatory to take insurance for your bike. The cost of insurance ranges between Rs 1,000 to almost Rs 2,500 per annum, depending on the type of coverage you will take. If you keep your bike for almost ten years, you end up paying close to Rs 20,000 for just insurance.
RTO charges: When buying a bike, you must register it with Regional Transport Office (RTO). The charges are typically around 9-11% of the vehicle cost. This doesn’t include the registration charges if you move cities.
Maintenance: Every bike needs to be serviced every 100 days or 300 km, whichever is earlier. The cost of maintenance is low during the first few years of purchase but goes up as you use it. The cost is even higher for second-hand bikes, as they need more maintenance than new bikes.
Depreciation: One hidden charge is depreciation. Most bikes lose 10-15% of their value the minute they are out of the showroom. To add to this, they lose 10% every year for five years, making them one of the fastest depreciating assets.
All these costs add up to the actual cost you never account for and can be a burden on your pockets. Hence it is important to account for all these expenses when you plan to purchase a bike.
Smart tips for buying the bike
Purchasing a bike takes up a significant amount from your savings as it is a big financial investment. However, by following a few tips, you can end up saving a lot on your bike.
Time your purchase
Automobile companies give huge discounts during certain months of the year to increase their sales. Timing your purchase during these months can help you save a lot.
Undoubtedly the festive months (October, November, and December) are the best to buy two-wheelers as the companies offer discounts and benefits such as free insurance, corporate discounts, accessories at a low price, and cash vouchers.
Apart from this, in the final quarter (especially March) companies give big discounts as they rush to sell the old models to introduce new models in the next year. Some of the benefits they offer apart from discounts are exchange deals, free accessories, and service benefits. The monsoon months (July – August) also come with discounts of up to 10%, as the sales during these months are usually low.
New vs second hand
Many consider buying a second-hand bike due to its low cost, while others prefer a brand-new bike. The choice totally depends on the individual's preferences and finances. You must consider the pros and cons of each before possession of a new or second-hand bike.
Buying a new bike has the advantage of a warranty and fewer mechanical problems hence fewer maintenance costs. But a new bike costs a lot, and the insurance is expensive too.
On the other hand, a second-hand bike is less costly, and the insurance premium is low too. However, the maintenance costs are high, it has no warranty, and the bike might have mechanical issues. Moreover, you won’t have many options as you have to settle for what the seller is selling.
When you get a bike, you might get tempted to add comfort seats, navigation, or other add-ons. However, it is important to consider the costs of these add-ons. But not going for an additional accessory or add-on, you can save a lot on the bike cost.
When you buy a bike, they end up offering you insurance as well. The premium for these insurances is generally high as it is a major source of revenue for the dealers. Instead of going for dealer insurance, you can get your own insurance from third parties. Look up insurance options online, and choose the one with a low premium. This way, you can save up on insurance costs.
Maintenance and service
A bike needs to be serviced regularly; hence, it is important to ensure the brand has a well-distributed service network and is accessible. There is no point in waiting for weeks to get a spare part or paying a lot to transport your vehicle to another location to get it serviced. Accessible service locations are less costly than far-off locations.
Frequently Asked Questions
Is it good to invest in a bike?
The bike is one of the fastest depreciating assets. A bike loses 10-15% of its value right outside the showroom. So, it is better to buy a bike only if you are going to use it regularly or for travel.
What is a better option – EMI or Cash?
Taking a loan or buying a bike for cash has pros and cons. Hence it is better to consider the pros and cons of each of the methods before opting for one.
Are bike loans tax-free?
Loans taken for a bike for individual purposes do not qualify for tax exemption. However, if you are a business owner or a freelance, who took a loan to buy a two-wheeler for business purposes, the interest can be treated as a business expense.
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