Purchasing a truck for your business can be a significant investment, and financing options are available to help make this process more manageable. If you are considering financing a truck, it is important to understand what factors can affect the approval process and interest rates. Here are some of the most important factors to consider when financing a truck.
1. Deposit Requirements
For new businesses, most financiers require a 20% deposit. However, there are also “no deposit truck finance” options available for both new businesses and existing businesses. This type of financing can help reduce the upfront costs of purchasing a truck and allow you to start using the asset right away.
2. Proof of Income
In some cases, no proof of income is required when financing a truck. This is the case if you:
- Have had an ABN for 2 years
- Are purchasing a new or used truck through a dealer
- The loan amount is under $300k
- The new loan amount is not more than 25% higher than the original loan (replacement commitment)
3. Low Doc and No Doc Finance
Low Doc and No Doc finance are becoming increasingly popular, as they mitigate the requirement for accountant-prepared financials. This type of financing can make the process of obtaining approval for a loan much easier and quicker.
4. Age of Truck
The best finance rates are offered for trucks that are no older than 5 years old at the time of purchase. While older trucks can still be financed, the payments will generally be higher based on the increased risk associated with an older asset.
5. Business History
For businesses that have been operating for several years, have 2 years of financial statements, and are asset-backed, better finance packages may be available. This is because these businesses are seen as being more established and financially stable, and therefore represent a lower risk to the lender.
6. Transactions through a Dealer
Transactions that are made through a dealer typically involve less paperwork and settle quicker than if the truck is purchased privately. This is because the dealer often takes care of the necessary paperwork and can negotiate better financing options on behalf of the buyer.
7. Credit History
If an applicant has a negative credit history, it can be harder to obtain approval for a loan. This is because the lender views the applicant as a higher risk and may require additional documentation or information to assess the risk.
8. Risk Premium
In some cases, a risk premium may be added to the interest rate if the loan is deemed marginal based on the servicing or risk of the particular age or type of truck. This premium is designed to compensate the lender for the increased risk associated with the loan.
Conclusion
Financing a truck can be a complex process, but by understanding the general rules of thumb, you can make informed decisions that will help you get the best possible financing solution for your business. Whether you are a new or established business, there are options available to help you obtain the funding you need to purchase the truck you require.
