Understanding True Effective Interest Rates in Truck and Trailer Finance

Truck & Trailer Finance Australia

When it comes to commercial truck and trailer finance, many lenders don’t show the interest rate on the loan documents. This can create a lot of potential issues especially if you’re comparing loans based on rate alone.

It is a common sales tactic to quote Base Rates as it is the lowest starting point. When comparing finance quotes from brokers, lenders, or dealerships, the Base Interest Rate is often what gets communicated.

But what you really need to compare is the overall repayment and understand your True Effective Interest Rate.

True Effective Interest Rate means the actual repayment amount on your truck and trailer loan, including all other fees that may or may not be disclosed upfront.

True Effective Interest Rates takes into account:

• Base Interest Rate 
• Dealer Fees (Very common to see $990 Introduction Fee) 
• Establishment Fees (Very common to see $500 Established Fee) 
• Application Fees (Very common to see $500 Application Fee)
• Monthly Account Keeping Fees (Very common to see $4.95 to $9.95 monthly account keeping Fee)
• Documentation Fees (Very common to see $990 Documentation Fee) 
• Broker Origination Fees
• Inspection Fees

It’s okay for brokers, dealers, and banks to charge these fees but they should always be disclosed to you.

That’s why simply asking “What’s the rate?” isn’t enough. To compare properly, you should always ask for both the rate and the repayment.

Why It Matters:

Not understanding effective rates will cost you more in the long run when running your transport and trucking business. The True Effective Interest Rate helps you make a fair comparison between lenders, brokers, and dealerships.

Pro Tip:

Don’t just ask for the interest rate.

Always ask for the monthly repayment and any other fees.

Always compare the overall repayment to determine who is actually cheaper.

Always compare the total repayment amount over the life of the loan. 

Case Study – Dealer Vs Broker

ABC Pty Ltd is purchasing a Brand-New Hino 500 for $150,000.

Dealer Quote:

• Base Rate: 6%
• Dealer Introduction Fee: $990
• Establishment Fee: $795
• Account Keeping Fee: $4.95 /month
• Monthly Repayment: $2,925 Incl all fees above

Yakka Finance (Broker Quote):

• Effective Rate: 6.25%
• Application Fee: $500 (financed)
• Monthly Repayment: $2,912 Incl all fees above

Result:

Even though the dealer’s base rate looked lower, the broker’s effective rate and lower fees resulted in a cheaper repayment, saving the client money each month.

Broker Vs Broker  

ABC Pty Ltd is purchasing a 2020 Kenworth K200 for $350,000 and received two quotes:

Yakka Finance:

• Quoted a rate of 6.25%
• Disclosed a bank application fee of $500
• Quoted a monthly repayment of $6,782 (including the bank fee)

Another Broker:

• Quoted a rate of 6% — but didn’t give a confirmed repayment, only said it would be around high $6k
• The client assumed the lower rate was better and proceeded with that broker
• The broker did not disclose his $7,000 origination fee upfront
• The client ended up paying $6,877 /month — more than the Yakka quote

It is not about who is better, dealer, bank or broker. All it is, is true transparency. At Yakka Finance, we believe in showing you the full picture for you to make the best decision for your business.