How to get a semi-truck loan
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A semi-truck is a significant financial investment, but many people don’t have the cash to purchase outright.
Financing the costs of a semi truck may seem like the perfect solution because it offers startups and established businesses an affordable way to acquire the capital needed to make this large purchase. But you’ll want to know more about how to get them and the buying process before committing.
Check your credit
Your credit score affects your ability to obtain semi-truck financing and your interest rate and term. Before applying for a semi-truck loan, check your business credit score.
Business credit reports and scores are available from several credit bureaus, including Dun & Bradstreet, Equifax, Experian and FICO. But lenders may also check personal credit when assessing creditworthiness.
Once you’ve confirmed your score and reviewed your report, you can decide how to proceed. Several lenders offer bad credit business loans, so you can apply for financing even if you have a low score. But if you prefer to wait and improve your score, take a look at your report to address any errors or discrepancies and pay down debts before applying for funding.
Save for a down payment
With semi-truck financing, the down payment, which is your upfront contribution to the purchase, depends on the lender, the borrower’s credit profile and the truck. The down payment cost typically ranges from as low as 10 percent to as high as 35 percent.
So if you’re looking at a new truck that costs $250,000 and the lender wants a down payment of 20 percent, you’d have to come up with $50,000 ($250,000 x 0.20 = $50,000).
Borrowers with good-to-excellent credit scores and a solid financial history may qualify for no down payment. Plus, a down payment may not be required if a borrower has a long-standing relationship with the lender.
Determine how much truck you can afford
Determining how much truck you can afford is an important step in the buying process. The total cost of your semi-truck loan factors in interest — ranging from 6 percent to 30 percent — but you also have loan fees and the down payment to consider.
Calculate your business income and expenses if you want to know how much you can comfortably allocate toward truck payments. You may have a lot of money coming in, but rent, utilities, inventory and supplies are expensive, so laying things out can give you the full financial picture.
You can use Bankrate’s business loan calculator to get a more accurate idea of how much truck you can afford and your potential monthly payments.
Semi-truck loan vs. lease
If you’re not sure if buying is the right choice, you can lease instead. The best option depends on the borrower’s specific needs and financial situation.
One key difference between a loan and a lease is ownership. With a loan, the borrower owns the truck once the loan is paid off, while with a lease, the borrower rents the truck and doesn’t take ownership unless they can purchase it at the end of the lease.
Leases tend to have lower monthly payments compared to loans, but it’s important to note that this depends on whether the lease is open-end or closed-end. Open-end leases don’t come with restrictions, but closed-end leases require drivers to stay within a certain number of miles during their lease term.
Find your semi truck
When it comes time to find your semi-truck, you’ll have to decide if you want new or used. Lenders often have restrictions on the type and age of vehicles they will finance, and since the truck is used as collateral, its cost impacts the amount of financing you’re able to secure. A used truck will be less expensive, so consider your budget as you weigh your options. You should also determine what amenities and type of transmission you want.
Find the right type of semi-truck loan
It helps to know your options when trying to find the right type of semi-truck loan. You have your pick between several types, including equipment loans, SBA 7(a) loans and bank loans.
Equipment loans are typically more accessible than traditional business loans. The information factored into approval is similar, but the requirements, such as credit score, time in operation and annual revenue, are often more flexible. This is especially true if you secure a loan through an online lender.
SBA 7(a) loans
SBA 7(a) loans can be used for various purposes, including purchasing equipment. Loan amounts range up to $5 million, with repayment terms of up to 10 years for working capital loans. The lender determines interest rates; but they can’t exceed the maximum SBA loan interest rate, which is currently between 10.25 percent and 12.75 percent for variable-rate loans and 13 percent to 16 percent for fixed-rate loans. The SBA also charges a guarantee fee ranging from 0.25 percent to 3.5 percent of the guaranteed portion of your loan.
Term loans from lenders may also be used to purchase a semi truck, which gives you a lump sum that can be used to cover any business-related cost. Rates, terms, loan amounts and fees vary based on the institution, but not every business will qualify for a term loan from a bank since the requirements can be strict. If you don’t think you’ll qualify for a bank loan, a bad credit loan from an alternative or direct lender may be better.
Check out our best semi-truck loans to see top lenders and the loans they offer.
Check your eligibility
When applying for any type of equipment loan, including a semi-truck loan, you should review the following factors to confirm your loan eligibility:
- Credit score: Unlike an unsecured business loan, which relies heavily on the borrower’s credit score, a semi-truck loan is a secured loan, so the asset securing the loan is what’s important. But lenders still evaluate your business or personal credit history to understand how well you can manage debt.
- Annual revenue: The lender considers your annual revenue to assess your ability to make monthly payments and avoid defaulting on the loan. Check out our guide on debt-service coverage ratio to see how lenders assess your revenue.
- Time in business: Most lenders require businesses to have been in operation for at least two years. But some lenders will consider businesses at least six months old and select startups since the truck acts as collateral and lessens the risk of lending money to risky borrowers.
Beyond these basic requirements, a CDL may be needed. Lenders want to ensure if a business loses its driver, business income won’t be impacted because the owner can get behind the wheel until a new driver is hired. Additionally, insurance is often needed before the loan is funded. The different types of coverage protect the business, the truck, the driver and any cargo being carried.
Each lender has its own unique terms, rates and eligibility criteria. Not only can comparing lenders ensure borrowers find a suitable financing option for their specific business needs, but it can also potentially help them save money on the total cost of the semi-truck loan.
Banks and credit unions
Banks and credit unions offer equipment and term loans with competitive rates and terms. But lending requirements are some of the strictest you’ll run across. To qualify for financing with a bank or credit union, you usually need to be an established business with good-to-excellent credit and high annual revenue.
Compared to banks and credit unions, alternative lenders have relaxed lending requirements that allow borrowers with bad credit or less than two years in operation to get funding. These types of lenders operate online, so there are no brick-and-mortar locations. The application process is streamlined, allowing approved businesses to get funds in as little as one to three business days.
A direct lender is a good option if you prefer non-traditional financing or don’t think you’ll qualify for a bank loan. You probably won’t get rates as good as banks and credit unions offer, but direct lenders are semi-truck experts who can help you choose the perfect truck for your business. And similar to alternative lenders, they accept borrowers with bad credit or limited time in operation.
Getting preapproved gives borrowers a better understanding of the loan terms they are eligible for, including the loan amount, interest rate and loan term, and helps them decide if the truck is affordable. After choosing a lender, see if there’s a preapproval option available. If you know you can afford the loan and have high odds of approval, you can shop for your semi-truck confidently.
A semi-truck loan application will ask for information about your business and the truck you wish to finance. You’ll also submit business documentation — including bank statements, licenses and tax returns.
Once your application is submitted and approved, review the loan agreement and confirm the loan amount, repayment terms, fees and consequences of default. Most lenders seize the truck if you default on the loan, but you want to confirm how your lender handles borrowers who can’t keep up with their loan payments.
A semi-truck loan could be the answer if you want to purchase or upgrade your trucks. Before applying, evaluate your credit score, income and time in business to determine your eligibility and calculate how much truck you can afford.
Frequently asked questions
Semi-truck payments are based on various factors. Depending on your creditworthiness and the loan size, you should expect to pay anywhere from $800 to $1600 monthly for semi-truck financing. To see how much you could pay for your loan, enter the loan amount, interest rate and term into Bankrate’s business loan calculator.
Typically, you can finance a semi-truck for 12 months to 60 months, but some lenders offer extended repayment periods of seven years or more.
A credit score of 670 and above will help you to qualify with most lenders and help make the semi-truck loan more affordable. But you can also get a loan with a credit score of 550 or higher, but the interest rates and fees will be much higher.