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 a lease, so you'll have to deal with interest charges. Also, semi-truck financing is an accessible way to get your transportation business off the ground or help take your business to the next level.
If you are looking for ways to finance a semi-truck, this guide will help. Find out how to select the right semi-truck loan terms and common mistakes to avoid while taking a commercial vehicle loan.
What is Semi-Truck Financing?
You can take a truck loan for buying or leasing a new or used truck. You can also finance trucking equipment or repair works through semi-truck loans. Securing a loan for a semi-truck can be quite different from traditional loans. Truck loans require more down payment and are costlier than business or consumer auto loans. Your monthly loan payments for a semi-truck can depend on your FICO scores, your work experience in the trucking industry, whether you are a homeowner, the type of vehicle you want to purchase, and the lender you choose.
Bad credit is not rare in truck financing, and lenders are willing to finance riskier borrowers for a premium. People with bad credit can still secure semi-truck financing for higher APR, more down payment, and shorter term.
There are multiple ways to finance your semi truck. You can buy a truck with a commercial loan, truck dealership loan, in-house semi truck loan, business auto loan, or a bank small business loan.
Pros of Financing
Here are the pros of financing a commercial truck.
Ownership: Every payment to your semi truck loan increases your equity in the asset. Eventually, you will become the sole owner of your vehicle.
Fast Funding: You can get funded within a week if you have all the necessary paperwork.
Tax Benefits: When you finance a semi-truck, you can claim tax deductions based on asset depreciation.
Improve Credit Score: If you have bad credit, taking fresh credit and making prompt payments can improve your credit score.
Pre-Approval: You don’t need to pay fees or make down payments to get a pre-approval that stays valid for weeks. You can confidently deal with truck dealerships once you have a pre-approved semi-truck loan.
Cons of Financing
Here are some cons of financing a semi-truck.
High Costs: Since commercial vehicles are a risky asset class, lenders charge higher rates (5-30%) compared to consumer auto loans, personal loans, credit cards, or certain business loans.
Complicated Terms Over $500,000: Commercial vehicle loan terms and documentation can get complex if you want a high-value loan. You may need to submit your personal asset details and business financial statements to your lender for approval.
Lower Term: Truck loans have lower terms (usually 48-60 months) than traditional lines of credit.
Repossession Risk: Your lender may repossess your vehicle if you miss loan payments.
Dealership Scams: Some truck dealerships can cheat borrowers by intentionally selling a bad loan for higher commissions, charging documentation fees before loan approvals, selling needless warranty/insurance packages, and not being transparent on the loan terms.
Financing vs. Purchasing vs. Leasing
You can own a semi-truck by purchasing or financing. You can also choose partial ownership through lease models.
Semi-Truck Purchasing
You can purchase a truck with your savings, personal loans, credit cards, etc. Trucking is a high cash-flow business, and you can generate consistent monthly income from your investments. However, with the average cost of a semi-truck being $165,000, purchasing a commercial vehicle can deplete your business working capital or stretch your personal budgeting for a few quarters. Make sure to secure your vehicle with a truck warranty and insurance.
Semi-Truck Financing
A truck loan helps you start driving your truck or expand your trucking business with little or no down payment. Borrowers who have good credit or mortgageable assets can get low rates. You can also take a title loan by mortgaging an existing vehicle as collateral for a new semi-truck financing. However, you may lose your truck and assets to repossession in case of default. Make sure to build an emergency fund to maintain continuity in your loan payments.
Semi-Truck Leasing
Your lender finances your semi-truck but becomes the final owner of the vehicle under the lend-and-lease model. Leasing is flexible but often more expensive than purchasing or financing a truck. Lease-to-Own models allow borrowers to buy back the asset from the lender. Lenders can put usage restrictions on the trucks under a lease. The rules of semi-truck leasing are not set in stone, and it’s common to negotiate terms with your lessor.
If you’re interested in semi-truck financing, then contact Union Commercial Capital today to speak with one of our Funding Specialists.
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