Financing a pre-owned commercial truck can be a mixed bag. Those with good credit and an established revenue stream will find plenty of lenders willing to fund their purchase at a reasonable interest rate. But those with poor credit? There’s extra approval hoops to jump and higher rates to pay. Then there’s everyone in between. No matter where you fall on the credit spectrum, there are certain things you can (and should) do to secure the best options available for financing a truck — on terms you can accept.
What’s the Score?
The economy is rebounding nicely from its recessionary woes, but lenders are more cautious than ever before. Know this: whether you’re adding to a small fleet, buying as a seasoned individual owner-operator, or are a first-time buyer with a new Commercial Driver’s License (CDL), credit worthiness has taken on new importance.
700 and above: Easy breezy
Generally speaking, if your FICO credit score is 700 or better, lenders are actively looking for you—you have it easy. In fact, you may be able to put down less than 10% of the vehicle’s value (or no money down at all), and your interest rate on a standard 60-month term could even be in the single digits.
Below 600: Be prepared to pay
If your FICO score is below 600, there are still lenders and sales organizations that want your business. But be prepared to pay anywhere from 18% to 28% interest rates the lower your score goes. The best way to improve this is to get your credit act together. Here’s a checklist of four steps to take starting now:
- Obtain your credit score and report. There are a few ways to go about it, whether from a website (CreditKarma is a reputable free service), or from the credit reporting bureaus themselves (Experian, TransUnion, Equifax). Remember: you’re entitled by federal law to a free copy of your credit report every 12 months. Visit the FTC’s www.annualcreditreport.com for yours.
- Clean up that credit report. Forbes Magazine says the top actions to take include disputing any errors (can be done online with the big 3 bureaus); and negotiating with creditors to erase debts or change them to “paid as agreed.”
- Bring up your FICO score. Paying all open items on time is step one. Another way to do this (ironically) is opening up a new credit card and using it—wisely. Charge a few small items each month and pay the full balance immediately.
- Start putting away a few dollars a month for a down payment. As with buying a house or condo, the more cash you put down, the less you need to finance. This lowers the risk in your loan, and possibly your rate, too.
You Better Shop Around
When it comes to loans for pre-owned Class 4-8 trucks, there are several possibilities, including:
- Banks (traditional and conservative)
- Lenders specializing in transport
- Online lenders (many out there, but it requires vetting and research)
- The financing arm of the sales team you’re buying from
Of the four, the financing arm may be the most motivated in the group because they’re also selling the actual truck. Dealers want to close almost as much as you do.
In all cases, research is crucial. That holds not only for lenders, but the equipment you want to buy. Shop around. A few things to be aware of when selecting equipment that you plan to finance:
- High-mileage trucks make lenders nervous. Look for the lowest mileage you can find, ideally less than 500,000 miles.
- Go for quality over flash. Once you’ve got a short list of three trucks, ask for the inspection records for each and read them carefully for a history of breakdowns, accidents, and even poor gas mileage. All can have an impact on the willingness of lenders to finance your purchase.
- Depreciation and age are other factors to consider. Trucks lose value every year they’re on the road, but older trucks in good working order still retain substantial collateral value.
‘Closing’ Thoughts
While shopping, consider all options. For example, carrier programs have gotten more aggressive in recent years. With these, national commercial fleets put together attractive programs—like bundling in a warranty or offering no-money-down and low initial payments—to move their class 4-8 trucks. Some also offer down payment assistance, will have preferred lenders lined up and waiting (for most credit situations), and are able to act as a one-stop vehicle/lender experience.
At the end of the day, yes, there are many factors that go into smart financing. But stay focused on the top three keys to financing a pre-owned commercial truck on the best possible terms:
- Credit worthiness
- Down payment
- Research, research, research!
Soon, you’ll be in the truck you need… on terms you want.
