Let’s say you own a truck driving company and are looking to add to your fleet. Or, maybe you’re looking to start a business and need a commercial truck. Finding the right type of truck financing is a key component of the financial success of your business. While taking on a truck loan isn’t as easy or affordable as financing a minivan or sedan, there are countless options for all Canadian business owners. With that in mind, here is everything you need to know about getting approved for a large truck loan in Canada.
Reasons Why A Truck Loan Is The Right Option For Your Business
- Your current trucks are out of date and need replacing
- You need to increase your fleet to keep up with demand
- You’re starting a new business and a truck would be a great addition
- You need financing to pay for repairs or upgrades
What Is A Truck Loan?
A truck loan is similar to a typical auto loan in that the vehicle acts as security for the loan. Payments are made by the borrower on a monthly basis and the borrower’s financial health is used to determine approval.
Truck loans are typically taken out by small business owners who either own a trucking company or who are looking to purchases a truck to help with transportation. Because of this, a lender will likely ask you to provide information about the financial health of your business.
Typically, the borrower should know which truck they want to purchase before inquiring about financing and should expect slightly higher interest rates than a typical auto loan. Because a truck is usually a business asset, lenders see truck loans as a riskier investment. Be prepared to provide additional information and documentation and always consider and compare all your options to find the best lender for your needs.
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Types Of Trucks That Can Be Financed
When it comes to choosing which type of truck you want, you’ll have what might seem like an almost endless number of options to go through. There are semi-trucks, box trucks, dump trucks, tow trucks, flatbeds, and the list goes on. With so many options, how do you choose the right one for you?
Really, the type of truck that you get depends on what you need it for. A person who is looking to become an owner-operator of a long-haul truck driver will have different needs than someone just looking to do some moderately sized local deliveries. The price of the truck will also differ depending on things like size, age, mileage, etc. Generally, the heavier a truck is, the more expensive it will be and the stricter the requirements of the loan or financing might be.
As far as financing goes, there is the option to lease your truck instead of purchasing, but it is generally a better and less complex option to simply get the loan and pay for it.
Compare Providers of Truck and Transportation Financing
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|$5,000 - $300,000||8% - 29%||6 - 18||More Info|
|$5,000+||4.9% - 24.99%||18 - 48||More Info|
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How To Prepare To Apply For Commercial Vehicle Financing
Before submitting an application for any type of commercial vehicle financing, all business owners should make sure they have the following information and documents prepared. That way the process will go as smoothly as possible and you’ll be on your way to getting the financing you need.
As the business owner, most lenders will require you to provide at least a government-issued ID as well as your SIN. General information like your address, phone number, and email address, will also be required. If the lender is requiring you to personally guarantee your loan, you will also need to provide information and documents about your personal finances.
Most lenders want to know what you plan on doing with the money and how it will help you improve your business and grow your revenue. Generally speaking, if you own a business you should have some type of business plan written down. If you don’t, this is a great time to get started.
Revenue History & Proof of Income
Does your business bring in enough revenue to cover the cost of the financing you’re interested in without seriously affecting your working capital? In fact, most lenders will require you to have a minimum monthly income before even considering your application. To assess your business health, they’ll often require your bank statement, cash flow statements and other financial documents.
Proof of Assets
Do you own any business assets like real estate, equipment, or vehicles? If you plan on using any of your assets as collateral, proof of ownership, registration, and even licensing information will be required.
By providing an adequate down payment for the truck or other vehicle you’re looking to purchase, you’ll not only reduce your monthly cost but will also increase your chances of approval. The size of your down payment will depend on several factors, including but not limited to your loan size, the asset you’re purchasing, and even your credit history.
Advantages Of A Truck Loan
- You’ll Own The Truck – Each payment you make towards your truck loan will bring you that much closer to owning the truck. Once you own the truck, you can use it to get a truck title loan or sell it for profit in the future.
- Tax Benefits – When you purchase a vehicle for business purposes, you can deduct certain expenses such as fuel costs, truck insurance, repairs and even interest paid on a truck loan.
- Spread Out Payments – The main benefit of a truck loan is its affordability. Trucks can be very expensive, making it hard to pay off upfront. With a truck loan, you can spread the costs over several years.
Disadvantages Of A Truck Loan
- Negative Equity – If the value of your truck depreciates faster than you can pay it off, you may end up with negative equity. This means you owe more on your loan than what your truck is worth. Lenders generally try to avoid this by financing only a portion of the truck.
- Down Payment – As mentioned above, lenders generally dislike providing loans where the borrower may end up with negative equity. This is because it increases the lender’s risk. If the borrower were to default on the loan while they have negative equity, it’ll be harder for the lender to recoup payment even after seizing the vehicle. As such, many lenders will require you to provide a down payment.
Cost Of A Truck Loan
When financing a truck, you need to consider the cost of the loan. This includes the interest rate, term length, upfront payment and the overall loan amount. All these factors can affect the total cost of your loan. Below we’ve illustrated the cost of a basic truck loan.
|Down Payment (20%)||$12,000|
|Financing Amount (80%)||$48,000|
|Interest Rate (APR)||15.9%|
|Term Lenght||5 years (60 months)|
|Total Interest Paid||$16,412.30 ($4,412.30: interest + $12,000: down payment)|
Already Own A Truck? Use It To Get A Loan
If you’re struggling to secure a loan to help grow your business, you can use a truck that you already own as collateral. This is called a truck title loan. These types of loans can not only help you get a larger loan but can also help you get a better rate.
What essentially happens is that the lender will take the title of your truck and use it to protect themselves in case you default on your loan. This is a great way to make yourself a more attractive applicant for a loan, but it can be risky, so make sure you consider all options and ensure you won’t miss any payments.
Of course, there are some requirements to be able to secure a title truck loan and use a vehicle as collateral.
- You must own a big rig or similar large scale delivery truck that is in good working condition
- The truck that is being used as collateral cannot have any liens on it
- You must be 100% finished paying for the truck
If those are all good on your end, you will be able to take advantage of a truck title loan.
Benefits Of A Truck Title Loan
A truck title loan is a great option for all truck owners looking to take out a loan. Should you decide to apply for a truck title loan you’ll be able to take advantage of the following benefits;
- Lower interest rate
- Approval rates are usually higher
- Larger loans are available
- Because it’s secured, lenders are typically less interested in credit scores
Truck Loan FAQs
How do I get financing for a truck I want to buy?
Do I need good credit to get approved for a truck loan?
Can I get a truck loan without a down payment?
What types of trucks can I get financed?
Purchasing A New Truck Or Big Rig?
While getting approved for a large truck loan in Canada might seem like an intimidating venture, it really isn’t all that much more difficult than a regular car loan. Sure, it is more expensive and there are rules, but as long as you buy within your budget and ensure you make the payments on time, you shouldn’t run into any sort of a problem. If you’re interested in applying for a truck right away, we can help! Fill out an application below.