If you’re thinking about getting a new truck or have been looking for a deal the past couple of months, you need to know everything about truck loans and financing.
There are a lot of hidden fees, financing caveats, and tips you can do to get the best loan for your needs. Whether it’s a cheaper loan, one with lesser interests, or from which company to loan from—this article will talk about everything.
Let’s get started.
What is Truck Financing and Truck Loan?
Commercial truck financing is designed to allow consumers to buy vehicles for their businesses. The word financing here refers to the entire industry of loaning and purchasing trucks. It’s a broad word that encompasses the management of cash and finances that are related to your truck loans.
A few examples of commercial trucks mentioned here are delivery trucks, tipper trucks, crane trucks, and so much more.
Truck loans refer to the actual debt that you’re connected to. These loans are debts you have to pay and there are usually a lot of varieties to choose from when making a truck loan.
Is Truck Financing and Truck Loans Worth it?
Blowing all your cash into a truck might be worth it for your business, but it’s also a risky and dangerous move. As a rule of thumb, you should never dip into your savings, especially if it’s for your retirement. Your emergency fund also shouldn’t be used for purchases outside of actual emergencies. So, how can you grow your business through investments like trucks while lowering the risks?
Truck financing and loans are the safest way to purchase a truck if you’re willing to pay an extra percentage in interest. Truck loans not only allow you to buy vehicles without drying out your personal savings, but these loans also allow businesses without enough capital to scale by getting into good debt.
If there’s one thing that rich and successful people do well, it’s that they let money work for them. Although loans are greatly villainized, and for duly good reason, you shouldn’t avoid them if you can afford a loan. Loans let you scale your business without using your own capital, giving you leeway for progress and allowing you to keep your money for actual emergencies.
For businesses that want to grow, truck loans and finances are definitely worth it.
Types of Truck Financing
There are various types of truck loans and financing out there, but we condensed it into three main types to simplify things for you.
Starting off with the most basic one, equipment leasing is when you borrow commercial vehicles and pay a monthly price for each month that you use it. Legally speaking, the equipment or vehicle still belongs to the lender you’re leasing it from. However, you can usually rent these vehicles for cheaper than if you bought them yourself and you won’t have to worry about paying for the entire vehicle if you no longer need the truck.
If you want a different truck or want to stop using it, you can simply stop paying the monthly dues and return the vehicle. No loans hovering behind your back.
The problem with this type of lease is that you’re paying for something you’ll never own. This means that you’ll continually pay the lender to use that vehicle, which will result in diminishing returns after several years. If you’re looking to stay in the business for a long time or have already been in the business and need a truck for several years, you may want to consider skipping this loan and buying a truck yourself. That way, you’ll own it after the loan and you won’t have to worry about paying for something every month once your loan is cleared.
For those of you who are still interested in equipment leases, there are some things you should look out for:
- Is the truck insured?
- What will happen if the truck is damaged?
- What will happen if the truck fails (outside of human error) on you and costs your business money?
- Who will shoulder the upkeep and maintenance of the truck?
These are some of the few important considerations when figuring out the agreement for an equipment lease. You don’t want to be in a truck accident or have two flat tires only to realize that it’s your job to fix the truck.
Hire Purchase Agreement
A hire purchase agreement means paying for a truck to borrow it from a lender until you’ve paid the truck off. Once you’ve successfully paid the loan, the lender will transfer the ownership of the truck to you.
Just like the equipment lease, you’ll start off not owning the truck that you’re paying for. The main difference here is that once your loan is completely paid off, the truck’s ownership will transfer over to you. These types of agreements are typically the most flexible. The obvious upside to this is that you’ll no longer worry about paying monthly dues indefinitely since you’ll stop paying once you’ve paid off the entire loan.
However, a hire purchase agreement has a lot more important considerations. Keep a keen eye out for these types of scenarios:
- What happens if you miss a monthly payment?
- Under what circumstances will the loan turn void and the truck be returned to the lender?
- What happens if the truck gets into a crash and is no longer usable whilst the loan is still being paid?
These are just some of the many questions you need to clarify with your lender before jumping the gun. If you can figure out an agreement that works for both parties though, a hire purchase agreement is one of the best ways to buy and use a car. You pay a solid monthly rate, get to use the car immediately, and then own the car when the loan is done.
A chattel mortgage is when you can purchase a truck using borrowed funds from a lender. The borrowed funds can be any amount, often up to 100% of the truck’s total cost. There is no down payment necessary for these types of loans, but the truck will be used as collateral in case you miss payments or can’t continue to pay for the loan.
Confiscating the truck and selling it to recoup the losses from the loan is typically the last resort for lenders though, so that’s great to keep in mind.
Of all three, chattel mortgages are the most straightforward. There really aren’t a lot of important considerations and loopholes to focus on here.
What Documents Do You Need For Truck Finance and Loan?
If you’re ready to jump the gun and get a quote for a truck loan, make sure that you at least have the correct documents to seal the deal.
Documentation and IDs will vary from lender to lender, but we listed down the most commonly used documents that are necessary for truck loans. Use this as a rule of thumb when thinking about applying for a truck loan anywhere:
- ID (Driver’s license or passport preferably)
- Proof of your current assets and liabilities (like your house)
- Recent proof of income (payslips or bank statements)
- Information about the truck you want to purchase
With these four ready, you should be able to get a decent quote and a serious reply from any lender on the market.