Trucking is a very important industry, especially in the American economy. According to the American Trucking Association, the industry employs more than 7 million people and to keep this important industry going, trucks are needed, but the truth is that they are not cheap. However, there is good news to truck drivers who would also want to become truck owners as there are companies that specialize in offering truck loans. Below is a guide that will help you as an owner-operator to know the ins and outs of truck financing and what you should expect of small business loans for truckers.
How Does Commercial Truck Loan Work?
Truck loans work a bit differently from personal vehicle loans in terms of cost and other aspects. For normal loans, the bank is the most appropriate place to run to, but for truck loans, the case is different. Most banks shy away from these transactions, and only the big banks take on such financing having approved of about 26.9 of loans to small businesses because they have the financial muscle. The good news though is that other lenders specialize in truck loans. There are three main reasons why you could be interested in truck loans. They are:
- You want to buy a new or used truck
- You want to lease a new or used truck
- Or you want to repair an existing truck
Some Factors Which Determine Eligibility of Truck Loans
The truck serves as the collateral for the loan that you are securing. Therefore it is important to decide the kind of truck you want to purchase before approaching a first time owner operating financing company. You should decide if you want to buy a semi truck (for long haul transportation services) or a vocational truck (specialized for performing a specific task).
For long haul trucks, there is usually more tear and tear because of the long distances that the trucks cover. If you want a semi, then you should be prepared or negotiate terms that are favorable because at times your truck might develop mechanical problems on transit which might prevent you from meeting your loan repayment obligations.
Commercial Truck Financing Terms and Rate
The interest charged by commercial lenders often ranges from 5% to 30% depending on the condition of the track, creditworthiness of the borrower and the financial status of the business. The repayment term can extend to a period of 10 years. Some lenders will finance 100% of the loan, which means you do not have to give any down payment. However, for you to qualify for such a loan, you must have a very high credit score. The downside of this arrangement is that you will end up paying more interest since you are borrowing more money. Many lenders, however, require a borrower to finance at least 5 to 25% of the truck loans they need.
What If You Do Not Have A Good Credit Score?
You might be wondering if getting financing with bad credit is a possibility. Well, the answer is yes. But before you get all excited, it is important to realize that getting truck financing with bad credit is a tricky affair. Generally, it does not matter what your credit score is, you can secure a truck loan, but it’s going to be more expensive. What happens is that the financiers usually charge very high-interest rates since they consider it a high-risk investment. Since the truck is collateral on itself- then a poor credit score does not mean that you will not get the funds you need.
Since the truck is the collateral, financiers are willing to lend people with bad credit cash since they can easily recover their monies by selling off the collateral (truck). As earlier stated, one of the drawbacks of having bad credit and acquiring commercial truck financing is that the loan can be expensive. But, it is a very viable option which one can take advantage of and get themselves out of the bad financial situation.
Apart from interest, other fees may apply for truck loans. They include appraisal fees, credit check fees, application fees, and other fees that the lender might charge. It is therefore important to familiarize yourself with these extra charges so that you are well prepared.