Whether you’re just starting your career in trucking or growing your existing business, figuring out how to add more trucks to your fleet can be a challenge. Deciding how to finance a semi truck requires careful consideration and planning because of the costs involved. Semi trucks can range from $75,000 to $200,000 depending on whether you’re looking for a new or used truck. That’s a significant investment for any business, which is why drivers should evaluate their options for a loan carefully.
Which factors are considered?
A big decision to make when you’re looking into semi truck loans is from which party to take the loan. You have the option to purchase a truck directly from a truck dealership which is the most obvious option for drivers. However, other financing options are also worth considering so that you find the right fit for your budget and priorities. These options include banks and third-party lenders. Although they have their own criteria for credit approval and interest rates, there are a few common factors that banks and lenders consider in determining your eligibility for a loan:
- The vehicle (make, model, mileage)
- Your down payment
- Your credit score (ideally, 600 or above)
- Your business information and financials
- Your commercial driver’s license (CDL)
- Your truck insurance (FMCSA-compliant)
Steps for getting started
1. Save for a down payment.
The first step in financing a truck is having enough money saved for a down payment. The amount of the down payment will essentially help lenders finalize financing rates and terms. The more money saved means less money to borrow which can lead to a lower interest rate for your loan. When applying for a loan, a good range for the down payment is at least 15-20% of the vehicle purchase price.
2. Build your credit score.
Nobody’s credit history is perfect. The more you can do to build your credit score and history, the more flexibility you’ll have with financing options. This means doing your best to avoid derogatory marks on your credit report which can be seen as red flags by lenders. They might extend a smaller loan amount, require a higher APR or down payment or deny credit approval altogether. If your credit report consists of several derogatory marks and an inconsistent payment history, do your best to resolve those issues so that your credit score improves over time.
3. Obtain your CDL.
The length of time a driver has a CDL is a factor lenders consider. That's why obtaining your license is an important step. If a borrower wants financing but doesn’t have a CDL, then lenders will likely scrutinize which individuals are actually driving the vehicle. If you’re looking to hire drivers to run under your trucking authority, then conducting driver background checks and reviewing their driving history will also be necessary. More transparency between lenders and borrowers leads to better chances of credit approval and potentially better interest rates.
4. Have the right insurance.
Another factor that could be reviewed by lenders is your insurance. Having sufficient insurance that meets the requirements of the Federal Motor Carrier Safety Administration is an important step for your loan and your business once it’s up and running. Insurance is required by law, and you’ll likely need to have primary liability, physical damage, non-trucking liability and cargo coverage. If an accident occurs, you’ll need insurance to help cover the costs of any injuries to someone involved or any damages to your truck.
5. Pick the right lender.
After you have the prerequisites for a loan, you’ll have to decide which lender is the best fit for your needs. There are several lenders available, and you’ll have to consider each carefully. Ultimately, they are competing for your business and will try to accommodate different borrowing scenarios:
- New business owners: For new business owners, some lenders will allow a lower credit score and a smaller down payment. Options to finance a vehicle up to $100,000 are available, but certain requirements must be met like having previous driving experience and a CDL.
- Expedited loan approval: Some borrowers will need to complete a semi truck loan quickly. Because of this, options are available from some lenders to expedite the application process and loan approval. Borrowers generally need to have a good credit score and be able to show a higher amount of annual revenue in order to qualify for faster approval.
- Flexible payment terms: For those that value flexibility above all else, some lenders can accommodate that. They might offer borrowers flexible loan terms, seasonal payment options, fixed or floating interest rates or operating leases.
- Bad credit: Some borrowers might have poor or limited credit history or low cash reserves when applying for a loan. Because of this, they could be viewed as high-risk borrowers. Even so, some lenders will offer loans, albeit with higher interest rates or a larger down payment.
Do your research and consider your options carefully. Given the costs involved, it’s a significant investment in your business. By understanding the process and requirements for semi truck loans, you’ll be able to make the best deal possible to accommodate your needs.