While lenders recover from the easy-money days of the 1990s, it helps to have good credit.
If you have a large down payment, good credit history and solid trucking experience – and you own your home – truck lenders will beat a path to your door. Fall short in one of those elements and finding favorable financing terms may be difficult, financial experts say.
The bright side is that truck makers’ own finance arms are often more willing to make a deal with owner-operators, and buyers with good credit can take advantage of low interest rates.
Still, lenders and dealers say financing is hard for many owner-operators to find. The number of lenders has dwindled. Terms are much less favorable than in the late 1990s, when buyers could get a truck with little or nothing down. “If a trucker could walk and talk and breathe air,” says truck finance consultant Phil Jenkins, “he could get financed.”
A lot has changed. Stephen Parker, an assistant vice president at Flying J subsidiary Transportation Alliance Bank, says finance companies are now wary of owner-operators. “What you’ve had is an oversell and an overstock of inventory,” he says. “At the time, the economy was rolling and there was freight volume to justify the number of loans. As the economy went down, so did freight. Fuel and insurance increased.”
And so did the repossessions. As market conditions drove more owner-operators to turn in their rigs, finance companies began to feel the pinch. Some reduced their stakes in the market, some were acquired by other lenders and some stopped financing truck purchases altogether.
Jenkins, a former director of used trucks at Mack and a financer at The Associates, now part of CitiCapital, says at least six finance players are out of the market and more will probably exit. Today, only a handful of lenders serve owner-operators – and they aren’t anxious to make risky loans. They say truckers with solid business plans, a down payment and good credit can get loans. Others should improve their credit rating or wait out the crunch.
The problem started, say financers, in the early 1990s when dealers stopped sharing loan burdens. Lenders accepted all liability for bad loans and began shelling out cash as the economy heated up. By the time the economy began to flag, lenders were on the hook for hundreds of millions of dollars, and owner-operators were unable to make their payments. The crisis crept into the fleet market and coupled with a glut of used trucks. Values of used trucks plummeted.
After several dismal years, Jenkins says, finance companies are getting back some of their money as used truck prices rise and repos sell at better prices. But independent financers, such as Parker’s, have backed off the owner-operator market, choosing to focus on its more profitable business.
One place where owner-operators, even with a few blemishes on their record, can still get loans is a finance house run by a truck maker. Because of their relationships with their parent manufacturers, captive finance companies like Paccar Financial and Volvo Commercial Finance have more of an incentive to finance owner-operators, says Jenkins.
“They’re willing to bend a little bit more,” says Jenkins, who consults with Volvo and Mack finance companies. On the other hand, “Even with large down payments, independent financers are getting sticky with loans.”
Paccar, parent company of Kenworth and Peterbilt, is financing owner-operators through Paccar Financial, but has tightened requirements some, says Mike Rankin, vice president of operations. Finance companies “want more of a down payment today,” Rankin says. “Financing also depends on how much experience an individual has and how good his credit is.”
The large down payment works in the buyer’s favor, Rankin says. For instance, it lowers monthly payments and establishes equity at the beginning of a truck deal. Truckers can also get lower interest rates with a strong down payment.
Interest rates are at their lowest level in decades, but owner-operators who have flawed credit histories will not be able to take full advantage of that. “Higher risks have higher rates,” says Rankin.
On the other hand, Jenkins says, “For the 30 years I’ve been in this business, the rate has never seemed to matter to owner-operators. He wants to know if he can get financed and what’s his monthly payment. I’ve never lost a truck sale because my rates were higher than someone else’s.”
For truckers who lack the down payment or are handicapped by bad credit history, financers say waiting may be the best strategy, at least for now. “Get through this gray area in the finance department,” Jenkins says. “Six or eight months from now, the finance market might be a little stronger.”