Commercial Truck Financing: Because Big Trucks Cost Big Bucks

Commercial Truck Financing: Because Big Trucks Cost Big Bucks
Rebecca Hosley
on July 21, 2017
Read in 4 min

Financing a commercial truck may feel similar to the steps you’d go through to purchase a personal vehicle.

However, commercial truck financing for a business vehicle is an inherently more complicated process.

One reason for this is because commercial vehicles can be quite expensive – elevating the risk for lenders if you default on a loan.

This means as a prospective borrower you will face more scrutiny from lenders than if you were simply applying for a new car loan.

Let’s take a look at the ins and outs of commercial truck financing, including how exactly commercial truck loans work and what lenders are looking for in potential borrowers.

Commercial Truck Loans Go Beyond Semi Truck Financing

When we say commercial truck, we aren’t just talking about semi truck financing.

While that is certainly a common type of commercial truck loans, commercial vehicle loans also include:

Commercial trucks are broken down into two categories: transportation vehicles and vocational trucks.

Transportation trucks typically refers to semis, while other types of trucks will generally fall into the vocational truck category.

This is important because the types of loans you qualify for will be somewhat dependent on the type of truck you want to finance.

Commercial Truck Financing: How These Types of Loans Work

Commercial truck loans are a kind of equipment financing.

As such, the vehicle or vehicles in question can serve to secure the loan which may reduce your costs.

Once you know which type of vehicle you want to buy, it’s time to approach a lender to discuss your financing options for a business loan for a commercial vehicle.

At that point, the lender will look at certain criteria to determine whether they think you are a good risk.

This includes:

Time in Business

The longer your company has been around, the more appealing you will be to lenders.

Typically, lenders will want to see that you’ve been operating for at least two years.

New to the industry?

Check out the Small Business Administration’s (SBA) article on starting a trucking business for tips.

Sales & Revenue

Lenders are going to want to see that you are a successful business that is generating revenue on a consistent basis.

Credit Rating

The better your business credit score, the more likely you are to be approved for financing.

Good credit can also help you obtain a better interest rate on your loan, and in some cases, skip making a down payment.

And while bad credit won’t necessarily stop you from getting a loan, it could mean that you need to make a larger down payment.

Getting Commercial Truck Financing

If your business is new, you will need to have good personal credit to get approved, and lenders may require you to personally guarantee the loan.

Next, lenders will want to know how much cash you have for a down payment.

Due to the high cost of commercial vehicles, this can be a significant amount of money.

For example, let’s say you want to buy a truck that costs $100,000.

If you need to put 10% down, that’s still $10,000 you’ll have to come up with.

Next, it’s time to take a look at what your monthly truck payment will be.

This will be determined by the:

  • Down payment
  • Interest rate
  • & Loan term

The length of the loan can have a major impact on how much you pay for your commercial vehicle.

That’s because the longer you take to pay off the loan, the more you’ll pay in interest.

On the flip side, a longer loan repayment schedule will lower your monthly payment, so choose your own adventure.

Worth noting: Commercial vehicle loans typically have a higher interest rate than personal vehicle loans.

However, if you need commercial fleet financing for multiple vehicles, lenders are often able to offer deals or other specials.

4 Deal Breakers When It Comes to Commercial Vehicle Loans

While lenders specializing in commercial truck loans are often able to work with most applicants, there are four scenarios that will make it difficult if not impossible to obtain commercial truck financing.

These include:

  • Recent vehicle repossessions
  • Tax liens against your business
  • Being in the middle of a bankruptcy
  • & Past-due child support payments

If you are experiencing any of the above scenarios, you can still try financing a commercial truck, but it will likely prove to be a challenge.

Why Commercial Truck Loan Risk Can Vary

Now that you know what type of commercial truck you are buying, it’s time to look at some of the other factors lenders will take into consideration when evaluating you for a loan.

Some of them include:

Age of the truck

You will usually have a much easier time obtaining financing if the truck you want to buy is less than seven years old.

While buying an older, cheaper truck may seem like a good way to save money, it may make it more difficult to obtain financing.

If you are considering buying an older truck, Your Mechanic explains in a helpful article some things to consider when buying a used commercial truck.

Being an owner operator

It can sometimes be tough for owner operators to obtain financing, especially if you are just starting out.

That’s because if something happens and you are unable to work, you probably won’t be able to make your loan payments.

While it is possible to obtain financing as an owner operator, it may require a little more effort to find the right lender.

If you want to finance a semi truck

Some lenders view semis as high-risk and won’t even consider financing a semi purchase.

However, other lenders specialize in these loans.

Again, it may simply require a bit more research to find a lender that will be a good fit, but it is definitely possible.

Being an owner operator, wanting to finance a semi truck, or considering purchasing an older truck won’t prevent you from getting financing.

It just means you may have to work a little harder to find the right lender and the right financing options for you.

Ready to get started on buying a commercial truck?

See Business Lenders

Rebecca Hosley Finance Journalist

Rebecca Hosley is a content writer based in Chicago.

She frequently writes about small business, insurance and finance.

In her free time, she enjoys trivia, craft beer and disc golf.

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