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What is a bad credit truck loan?
A bad credit truck loan provides funds to individuals and business owners with issues in their credit history to finance a new or used truck. In most cases a bad credit truck loan will be secured by the truck it’s financing. This offers protection to the lenderif you're not be able to repay the loan.
In my experience, there's no shortage of lenders who are open to lending to businesses that are in a good position now, with strong prospects for growth in the future. Even if your credit score is not perfect.
The key is knowing which lender to apply with.
Bad credit truck financing in Australia is typically offered by specialist business lenders. It may be difficult to get approval from a major bank.
How do bad credit truck loans work?
- Borrow up to $1 million
- Finance for prime movers, 5Ts, flat beds, tray backs, vans and more
- Finance a new or used truck
- Repayment terms from 1-5 years
- Loans are assessed based on business revenue
- No-deposit options available
- Higher interest rates and fees than other loan types
Who can get a bad credit truck loan?
Bad credit truck finance can be suitable for businesses, sole traders and self-employed individuals with issues in their credit history. This could include:
- Applicants with previous defaults
- Discharged bankrupts
- Exited from Part IX Debt Agreement
Like any business loan, to be approved you’ll generally need to have been trading for at least six months, with reliable business revenue to support the finance repayments. You can use our truck loan calculator to quickly estimate what your regular repayments will be.
Bad credit truck finance options
Secured truck finance (chattel mortgage)
With this kind of loan, known as a chattel mortgage, the truck will act as collateral. This means you'll own the truck from the beginning, but the lender can reclaim it down the line if you can’t repay the loan. This can be a good option for bad credit borrowers as it reduces risk for the lender. For a chattel mortgage, the truck will need to be used for business purposes more than 50% of the time.
Unsecured truck finance
An unsecured business loan may be suitable if the truck you need is not eligible to be used as security (e.g. due to its age or the type of vehicle it is). It's often faster to get approval for an unsecured loan if you're eligible. But not all lenders offer unsecured finance to borrowers with bad credit so your options will likely be more limited.
Truck lease
Another common option is to take out a truck lease. The finance provider retains ownership of the truck but grants full use of it to you in return for regular lease payments. Depending on the lease type, you will either have the option to purchase the truck at the end of the lease (known as a finance lease), or upgrade the truck regularly but never take full ownership (operating lease).
How to apply for a truck loan with bad credit
At Money, we're experienced in helping borrowers with bad credit find the right truck finance and getting their application approved. Here are our top tips:
1
Research lenders before applying
Only certain lenders will lend to bad credit customers. Even then, some will filter out applicants who don’t meet other criteria, and these aren’t always clearly advertised on the lender’s website. Applying with the wrong lender will waste valuable time and could affect your credit score if you're declined.
2
Keep your loan amount as low as possible
Ideally you want to strike the right balance between not borrowing too much but also meeting the lender’s criteria for which assets are eligible for a low interest rate. The sweet spot is often a used but nearly-new truck with low mileage. The other option here is to contribute a deposit towards the cost of the truck so your loan amount is lower.
3
Get your documents ready in advance
It will make your life easier and give you a better chance of approval if you have the documents you’ll have to submit with your application ready from the start. What you’ll need will depend on the lender, but generally they’ll ask for your latest business bank statements, tax returns and proof of your ABN and GST registration.
4
Demonstrate how the truck will generate revenue
It can really help with your application if you can show the lender how the truck will generate revenue to support the repayments. If you have contracts for work lined up that the asset will be used for, show these to the lender.
Will I pay a higher interest rate on a truck loan with bad credit?
In all likelihood, yes. The interest rates on bad credit business loans are usually higher than rates offered to borrowers with good credit.
For example, secured bad credit truck loan interest rates generally start from around 15%, compared to 5% for a standard truck loan.
Bad credit truck finance also often means higher up-front and regular fees, and depending on the borrower, you may not be able to borrow as much as someone with a clear credit history.
But remember, your credit score is not the only factor that will impact your truck loan interest rate. The lender will also consider:
- The age of the truck (newer trucks attract lower interest rates)
- The type of vehicle (higher rates may apply to trucks with a niche or specialised use)
- How long you have been in business (the longer the better)
- What industry you operate in
Pros and cons of bad credit truck finance
Pros
- Access to business funding that would otherwise be unavailable due to your credit history
- Opportunity to grow your business by acquiring an income-generating asset
- The loan can be secured to minimise risk
- There may be tax advantages (e.g. interest on the loan may be tax deductible)
Cons
- Bad credit truck loans usually come with higher interest rates and fees
- Lower borrowing amounts available
- You may need to provide more information to the lender to prove your eligibility
- Taking on debt extra could put further strain on your credit score if you can’t meet the repayments
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