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Written byShaun McGowan
Truck finance is a type of business loan used to finance a heavy vehicle purchase and spread the upfront costs of buying the vehicle over time. In summary truck finance is:
Shopping around for the right loan can save you thousands of dollars in interest and fees.
Truck finance is a type of asset or vehicle loan used to purchase a heavy vehicle. There are several types of loan available and to find the right solution for your business you’ll need to understand and compare each of them.
Most truck finance will be secured against the vehicle you purchase, and many include high loan limits exceeding $1 million. To be eligible for truck finance you’ll need to prove your business has the cash flow needed to repay the loan.
Several different lenders offer truck finance including banks, non-bank lenders and vehicle finance brokers. Banks may offer lower rates, while non-bank lenders offer much faster approval.
Need a new business vehicle or equipment for your business?
You can read our guide to compare the benefits of a chattel mortgage vs lease vs hire purchase, and learn about some of the most popular types of truck finance below.
The bank provides a loan to purchase the vehicle and takes out a mortgage over it as security. You or the business will own the vehicle and be able to use it. Once you’ve purchased the vehicle you’ll need to make regular repayments on the loan - with interest - until it’s repaid in full.
With commercial hire purchase, you make regular payments to the lender to hire the vehicle for a set period. Once the period ends if you’ve made all payments you or the business will take ownership for the vehicle.
The lender buys a vehicle of your choosing then leases it to you for a set period of time. You’ll make regular lease repayments and be able to use the vehicle until the lease period ends. When the lease ends you can choose to purchase the vehicle by paying your lender the remaining value, or upgrading the vehicle by taking out a new lease.
Small business loans feature fast approval and loan limits of $250,000+. Many do not require assets as security. While this may be a simple and fast option, it may be more expensive than other alternatives with higher interest rates and fees.
|Chattel Mortgage||1-7 years||You own the vehicle from the outset||The lender may repossess the vehicle if you can't make repayments|
|Hire Purchase||1-7 years||Upon completion, vehicle ownership is automatically transferred to you||Can be expensive|
|Finance Lease||1-7 years||Low up-front costs||Residual payment may be required to own the vehicle at end of lease|
|Small Business Loan||1 month to 2+ years||Fast, easy approval||High interest rates and fees|
Interest rates will differ based on several factors including:
Generally speaking, loans to purchase heavy commercial vehicles tend to attract higher interest rates, especially if they’re for a specialised or niche use. That’s because lenders may find it more difficult to sell such vehicles and recoup their losses (compared to a passenger vehicle or a property, for example).
Loans to purchase brand-new vehicles usually have the lowest rates, with higher interest rates for used vehicles under five years of age, and higher rates again for used vehicles over five years of age.
Your lender will weigh up a number of factors to assess your risk as a borrower. That might include:
If your lender identifies you as a high-risk borrower, they may charge you higher rates to cover themselves against that risk.
Fees differ depending on the type of truck finance you choose, the lender you apply with and the type of vehicle you’re buying, but generally, they will include:
If you have good credit you may be able to negotiate with your lender to reduce the amount of the establishment fee. Several lenders also don’t charge early termination or early repayment fees, which can make it easier to repay your loan faster and save on interest.
Each lender and each type of loan has different minimum and maximum loan amounts. Your lender will also decide how much you can borrow based on your ability to service the loan.
Generally truck loans start at $5,000 to $7,500 and have maximum loan amounts from $250,000 to $20,000,000 or more.
In Australia, most truck finance options have loan terms from one to seven years. Small business loans generally have shorter terms from one month to two or more years.
To be eligible for most truck finance options:
To verify details about your business and prove that you can afford the loan, you may have to provide certain documents during the application process such as:
If you’re unable to provide the documentation your lender requires, you may be able to apply for a low documentation loan, or use alternate documentation such as financial statements prepared by your accountant.
Once you’ve prepared your documentation and made sure that you and your business are eligible, you can apply for a truck loan through your chosen lender’s website. Some lenders can also arrange the loan for you in person at a physical branch.
Some lenders offer approval for truck finance as little as 24 hours after you apply but in most cases, it’ll take three to five business days.
Yes, you can, however you may be charged higher interest rates and/or have your application denied.
Buying a heavy vehicle with truck finance may have a number of tax benefits for your business. You may be able to claim interest payments, depreciation and loan fees to reduce your business’s taxable income. It’s a good idea to speak to your accountant before applying for truck finance to make sure you’re maximising tax efficiencies.
Most lenders will lend 100% of the value of heavy vehicles and do not require a deposit. However, if you’re deemed to be a high-risk borrower or your business has been in operation for less than two years you may need to pay a deposit of 30% of the vehicle’s value.
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.