Financing Your Equipment
Keep your debt low and your credit rating high to land a loan with good terms.
Financing a truck can be frustrating, confusing and time-consuming, especially for first-time buyers. It also can be costly if you are not prepared. Give yourself plenty of time to shop for a truck and for favorable financing.
The good news is that truck loans, like business loans from a bank, usually have much lower rates than credit cards. Loans for trucks and other secured loans, such as cars or houses, are lowest because assets are backing them up. A bank’s business loan often is around 1 percent a month (12 percent annually). That’s where the best credit card rates start, but they’re usually much higher, even 20 percent or more for owner-operators with bad credit ratings.
Get a copy of your credit report before you attempt to secure equipment financing. Your credit history could contain wrong or harmful information that you’ll want to explain to a potential lender. Always be up-front about your problems. Showing you have overcome hard times demonstrates determination and strong character. When you apply for a loan, be prepared to provide as much information as you can. The more you tell a potential lender about yourself and your operation, the more comfortable he will be lending you the money. Show the lender you are a business owner first and a truck operator second.
Banks are not your only option for borrowing money. Check around for the lender that best suits your needs.
BANKS. Banks are reluctant to lend money for an over-the-road truck. In their opinion, “rolling collateral” is not a good risk. If you’ve been doing business at the same bank for a long time, however, and have an established relationship with a loan officer, it’s worth a try if your credit is good.
CAPTIVE LENDING INSTITUTIONS. These finance companies are owned by equipment manufacturers. They often are more willing than banks to lend money to new owner-operators because they are in the business of selling trucks. A used truck dealer might refer you to lenders other than captive finance arms.
COMMERCIAL LENDING INSTITUTIONS. These finance companies are not necessarily affiliated with truck manufacturers, but certain ones cater to the trucking industry.
GETTING THE MONEY
Whatever type of financing you choose, keep in mind that truck loan interest costs easily can consume up to 4 percent of your gross revenue. Interest rates can vary by two or three percentage points, even more – a difference of as much as thousands of dollars in interest over the life of a loan.
No matter where you obtain financing, the following can affect your interest rate:
• Credit history. People who have good credit get the lowest interest rates.
• Stable job history. Job-hopping indicates a lack of responsibility and rings the alarm for a lender.
• Longtime residency. People who live at the same address for a long time usually have a better credit rating.
Don’t take the first financing option you’re offered. You can negotiate loan rates just as you can haggle over the price of a truck. Interest rates vary from lender to lender, and from one part of the country to another, and finance managers have some leeway when setting the rate for your transaction.
NEGOTIATING THE DEAL
Getting a serviceable truck at the lowest payment possible is your goal. Before you head to the bargaining table, however, know how much you want to pay for a truck, how much you can manage per month and what interest rate you want. Then negotiate with what you consider to be the top three dealers. Never settle for the first quote. In many cases, you can work with a reputable dealer and bring down the price of your new rig through negotiation or, with a used truck, specification changes.