How does semi-truck financing work?
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Buying a semi truck can get expensive. Prices for used and new semi trucks can range from $50,000 to $160,000 or more. And it’s not just the cost of a truck that small business owners have to worry about. There’s also insurance, maintenance and other costs to think about.
Semi-truck financing helps you pay for your semi-truck over a period of time in installments. This financing comes in the form of a loan or lease, so you’ll have to deal with interest charges and additional fees. But semi-truck financing is an accessible way to get your semi-truck business off the ground or help take your business to the next level.
If you’re thinking about taking out a business loan to purchase your semi-truck, follow these steps to find the right option for your business needs.
Business loan requirements for semi-truck drivers can vary based on factors like your credit history, time in business, how long you’ve had your CDL license and even the age of the truck.
If you have good credit, a minimum annual revenue of $250,000 and have been in business for two years or longer, you’ll have no problem securing a loan with low rates and minimum fees. Startups businesses and semi-truck drivers with bad credit can also find financing. But compared to established businesses and small business owners with good credit, there is more risk involved and a higher chance of default. So lenders will compensate with higher interest rates and possibly more fees.
To get an idea of what type of loan you can qualify for, check your personal and business credit reports. Lenders may look at one or both, and that information will play a large role in whether you’re approved and the rates you qualify for.
Calculate how much semi-truck financing you can afford
Your next step is to determine how much of a semi-truck business loan you can afford. A business loan calculator will help you figure out the total amount you can afford, including interest payments. You’ll also see your estimated monthly payments and how much interest you’ll pay over the life of the loan.
Determine the type of semi-truck financing you need
There are different types of business loans suitable for commercial truck financing, and each has its own advantages and disadvantages. A few of the common types include:
These loans give small business owners a lump-sum disbursement of funds that get paid back over a fixed period of time. Interest charges begin accruing immediately for the entire loan amount.
Term loans can be used for a various business needs like day-to-day operations, expansion and commercial vehicles. Business term loan interest rates and repayment terms can be more favorable than other types of loans.
Line of credit
Like a business credit card, this is a revolving line of financing. You only have to repay the funds you use, and your balance replenishes as you repay, so you can repeatedly use it and repay it for a set period of time. This makes them great for short-term, ongoing expenses like maintenance and repair of semi trucks.
The best lines of credit have loan amounts of $250,000 or more, which could cover the cost of a semi truck. And eligibility requirements can be more relaxed compared to term loans, making them a good fit for startups and business owners with less-than-stellar credit.
Like term loans, this form of financing comes in a lump sum, but it’s specifically made for equipment purchases, such as a semi truck. With equipment financing, the semi truck is collateral: it is treated like an asset that the lender can take if you fail to make payments. Since the semi truck acts as security for the loan, you may be able to get a lower interest rate compared to other types of loans.
With this option, you rent the semi truck from an equipment financing company, and ownership remains with that leasing company. The lease runs for a certain amount of years and then you return the equipment or exercise an option to buy the semi.
Equipment leasing is an especially good fit for small business owners who struggle even to qualify for bad credit business loans. That’s because this type of financing has more lenient requirements than other loan types. They don’t require as much of a down payment and you may be able to qualify for more financing than you would with a loan.
Your next step to secure semi-truck financing is to try and get prequalified. When you prequalify, you can see which lender is likely to approve you for a loan, the amount you will likely qualify for and the interest rate. Since this isn’t an actual loan application, lenders typically only use a soft credit pull to look at your credit report, which won’t impact your credit score like a hard credit pull.
The benefit of prequalification is that you can then go shop for a semi truck with more confidence, knowing that a lender feels you’re a good fit to work with them. Unfortunately, not all lenders offer prequalification. You’ll need to research semi-truck lenders that best fit your needs and see if you can prequalify. If you like a lender that doesn’t offer prequalification, you can apply for a loan and if approved, move on to the next step.
When comparing semi-truck lenders, you’ll want to consider maximum loan amounts, interest rates, repayment terms and additional costs.
Find your semi-truck
When looking for the truck you want to buy, there are some key considerations to keep in mind:
- New or used. The used truck may save costs upfront, but might require more repairs or upgrades sooner. A new truck will likely cost more but could save you in repair costs down the road and also will likely come with a warranty.
- Features to consider. From manual or automatic transmission to day cab or a sleeper cab, you’ll have to narrow down the features you need and the features you want. You’ll also want to consider how many miles per gallon the truck gets and various safety features.
- History check. Be sure to get the truck’s history if buying used. You can see its accidents and maintenance schedule.
- Make sure the truck is approved by your lender. Lenders may only want to provide loans for certain types of semi trucks. For example, some lenders won’t approve a vehicle older than 10 years or with more than 700,000 miles.
Get semi-truck insurance
You will also need to get insurance for the truck, often a requirement of lenders. There are several main types of semi-truck insurance:
|Primary liability coverage||Covers bodily injury and property damage you cause others while operating the truck|
|Physical damage insurance||Covers truck repairs or replacement made after a collision, vandalism, theft, or natural disasters|
|Bobtail insurance||Covers accidents when the trailer is not attached|
|Non-trucking liability insurance||This covers you if you’re using your truck on non-working days or for purposes other than business|
|Cargo liability insurance||This covers loss or damage to your cargo|
|Uninsured motorist||Coverage for damages caused by an uninsured or underinsured driver|
|General liability||A type of business insurance that offers more protection against day-to-day risks like customer injuries or loading issues|
Finalize your semi-truck financing
The final step is to apply for a semi-truck loan. This is the step where you’ll provide more detailed information about your semi-truck business if you haven’t already during prequalification. You’ll need to provide specific personal and business information, such as annual revenue, the type of truck you are looking to buy or lease, credit scores, or CDL information.
Before finalizing your semi-truck financing, make sure you carefully go over the loan agreement. Don’t sign until you understand the specific terms included, such as total costs, fees and other specific loan details.
Pros and cons of semi-truck financing
If you’re not sure if semi-truck financing is right for you, below are some pros and cons to help with the decision-making process.
Pros of semi-truck financing
- Breaks down purchasing a truck into more manageable monthly payments.
- Makes semi-trucks more accessible to small business owners who otherwise couldn’t afford to purchase a semi truck.
- Terms, loan amounts, and loan types are fairly flexible.
- Funding can be quick, sometimes arriving within days or sooner.
Cons of semi-truck financing
- Some loan types, like equipment financing, can actually use the truck as collateral and take the truck back if you default on a loan.
- You typically need decent credit and an established business to qualify for the best rates and terms.
- Fees can be quite high due to trucking being a high-risk industry for lenders.
- You may have to make a down payment, which could be as low as 10 percent for some qualified buyers but as high as 35 percent for others.
Where to get semi-truck financing
Semi-truck financing can be found at various financial institutions. These include:
Banks and credit unions: Traditional banks and credit unions tend may have the best rates and terms for established businesses with good credit. But application and funding times can be slower.
Direct lenders: These lenders specialize in commercial trucks and can be more open to working with small business owners who have a hard time securing bank loans. But these loans can be far more expensive in the long run.
Alternative lenders: These are online lenders that typically offer faster funding that is more accessible than loans offered by traditional banks and credit unions. They may also offer different types of loans or funding sources like crowdfunding and peer-to-peer (P2P) lending.
Semi-truck financing can be a good way to own your own equipment and take charge of your semi-truck business. Lease options are also available for anyone who has less long-term plans in trucking or likes getting a new vehicle every several years. There are many different types of semi-truck loans to choose from, and rates, borrowing limits, and terms tend to be flexible.
Frequently asked questions
You can get semi-truck financing with bad credit. Traditional lenders typically prefer borrowers with good, but some are willing to work with small business owners with a limited credit history or poor credit. Direct commercial truck lenders and alternative lenders are more accessible options for people with bad credit. Many have lenient eligibility requirements and are willing to work with less established drivers. Unfortunately, bad credit usually means a higher down payment or higher rates.
Terms for semi-truck financing tend to be flexible and can range from 12 to 60 months or longer depending on the lender and your qualifications.
There are leasing programs that don’t require a credit check or down payment, but these can have hidden costs and be far more expensive than other lease or loan agreements. Equipment financing typically requires a credit check, but is often accessible to people with bad credit since the commercial vehicle is used as collateral. This could be a far better and cheaper option than no-credit-check lease agreements.
It’s possible to find semi-truck financing that doesn’t require a down payment. But you’ll usually have to put down a percentage of the purchase price based on your credit history and other financial details. Established businesses with good credit may only need a 10 percent down payment. Startup businesses and semi-truck drivers with poor credit are often required to pay higher down payments, which could soar as high as 30 percent.