No matter what you call it, semi-truck, wagon, eighteen-wheeler or simply a trailer, a truck trailer is a must-have for hauling-based business operations. Getting hands on one on a cash basis can cost you no less than $100,000.
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Having such a stash of cash ready in the bank can be daunting for many. This is where tractor trailer loans come into the big picture.
In this article you will learn the steps involved for applying for a loan, the lending services to consult, the most competitive interest rates available and how even those with poor credit ratings can access bad credit tractor trailer financing. Read on.
What is tractor trailer financing?
Tractor trailer financing is a long-term loan arrangement lasting at least a year or two and a maximum of 5 or more years, to enable you to manage the costs of buying a commercial truck over time.
The premise is to repay the loan that your lender extends to you in a timely manner that you can manage. Installments are due each month, and come with attached interest rates on top of the total payable amount.
With most lenders, especially banks, an upfront amount known as a down payment is a prerequisite, before you can access the rest of the funding. The lender can help you settle 100 percent of the loan, which in most cases translates to 90 percent of the total financing.
There are three core requirements for financing a tractor trailer:
- A personal guarantee of repayment from the applicant is considered by the bank as a legally-binding promise from you that you will still settle the loan even when your business fails to do so.
- A total upfront deposit of 10 to 20 percent, meaning that the bank will settle 80 to 90 percent of the money.
- A 24-month presence in the commercial truck business and a good credit score (CR) of about 670 is essential.
If you are after bad credit tractor trailer financing, chances are that you may not be looking for a new truck. In this case, banks and other lending institutions will give you loans on used semi-trucks not older than 120 months. This is to ensure that they give you good return on investment as these vehicles are still low in mileage and in good working condition.
Finally, you could also be seeking funds not for financing a tractor trailer, but for financing repairs of an existing semi-trailer. This is where you consult banks and other lenders for such tailored programs. They can range from wagon repairs to wheel replacement and similar coverage.
Related: Tractor Insurance
Where can I get tractor trailer financing for the lowest rates?
Going for the lowest rate possible for the best machinery out there is every truck buyer’s first priority. So, financing a tractor trailer at the lowest rate requires a patient comparison of various lenders to settle on the best with options that suit your specific needs.
A search will probably bring you to these two options:
- Traditional banks offer the lowest rates in the industry, but have the most stringent qualification requirements. Thus, if you are merely after a low interest rate but can wait a long period for paperwork processing, and you have a credit score of no less than 670, then a bank is the best option. The repayment period is normally 1 to five years while that of an 18-wheeler truck can last between 1 and 7 years.
- If you still want some other lender outside banks but with a matching or lower interest rate for financing a tractor trailer, then you may look to a credit union. These not only offer handsome rates for new trucks but refinancing options, too, at rates equal to those of an existing bank loan.
Where can I get tractor trailer financing quickly
Alternative lending agencies are normally on the fast lane and more or less approve loan requests faster in comparison to banks.
Some may not have as high loan limits as banks (which offer up to $1 000,000), but they process your request in a timely manner. The only downside is that these agencies do not have as competitive rates as those of banks and credit unions. The advantages, however, outweigh the rate disadvantage:
- With an alternative lender such as Balboa Capital, you require a fair credit score of just 620.
- You only need to have been 12 months in operation to apply for their truck loans.
Which banks offer financing for tractor trailers?
For most people in need of bad credit tractor trailer financing, banks do not pop in mind as the first priority because they demand high credit scores. However, banks do come first in mind when your credit rating is good because they offer the best market rates for semi-truck loans. The following is a list of such traditional lenders in the US:
- US Bank has a funding category for trucks falling under its equipment financing docket. It has a cap of one million dollars for a period of 2 to 5 years. The process for this high offer is long but you can go for their $150,000, low-interest program that is quickly processed.
- Wells Fargo is the most flexible in the US for anybody in need of financing a tractor trailer with a diversity of repayment options in mind. There are even line of credit repayment offers, and periods ranging from 1 to 7 years for trailers and 3 to 7 years for extraordinary trucks.
- Bank of America: by January, 2023, this bank had a handsome rate of 6.5 percent, with a requirement of at least 24-month business operations on the part of the applicant, to qualify. The only disadvantage is that applicants need a yearly business turnover of $250,000 to access funds. On the good side, loans can be as little as $25K to $750K, extending for 5 years.
Other lenders (outside banks) that offer tractor trailer financing
Outside banks, there are two kinds of alternative lenders for financing a truck trailer, namely capital and direct financiers.
Capital financiers’ agility to process financing within 24 hours ranks as one of their most attractive aspects. On the downside, however, most alternative lending agencies such as Balboa Capital make it necessary to demand that your capital base be at least $100,000 in order to qualify for the loan.
Direct lenders, on the other hand, specialize in financing truck trailer purchases. They offer fast services in as little as two hours of applying, are lenient on the credit rating front-even offering bad credit tractor trailer financing-and they are easy to consult. The main companies in the US under this category include Quest Capital Group and Commercial Fleet Financing.
Can you finance a tractor trailer with bad credit?
It is absolutely permissible to access bad credit tractor trailer financing even when it seems like you have exhausted all possible lending avenues. Some alternative lending agencies make no inquiries on your credit score but require a high down payment to match your circumstances.
They need at least 50 percent deposit, and their maximum loan amounts for heavy equipment may not exceed $55,000. Thus, even with a credit rating of less than 670, you still have a choice to make from many alternative lenders out there.
Should you finance or lease a tractor trailer?
Direct financing of a tractor trailer is good for a business with a good credit rating and doing well, meaning that it can afford to repay the entire loan amount. It is also a good option for prospective owners who need to eventually own a semi-truck of their own.
A lease option is a suitable alternative for bad credit tractor trailer financing. With a lease, you operate a loaned truck for a period of time and pay a monthly fee for it before returning it to the lender upon the term’s completion.
With leasing, no credit score check is needed. The interest rate is lower than in direct financing and the term can be as little as 1 to three years and as long as 5 years, similar to direct financing. The disadvantage of leasing is that there is a cap on mileage and you must complete the term before turning back the heavy equipment to the lender or suffer penalties.
How to finance a tractor trailer
Follow these easy steps:
- Decide on and select the particular heavy vehicle that suits your business. It can be new or used depending on your needs and financial context.
- Settle for a good insurance program with low premiums. A fair credit score above 620 will likely earn you an alternative lender while a good score of 670 will lead you to the banks.
- Apply with your lender of choice to gauge whether you meet the requirements. Most lenders need a business income balance sheet of the past 2 years, federal identity documents such as your ID, a CDL copy, tax information of the past 24 months and bank statements of the past 3 to 12 months.
- Wait for approval and start repaying the loan under a specified period of time.
Frequently Asked Questions
Here are the top questions that normally concern potential partakers of tractor trailer financing:
How long can you finance a tractor trailer?
The term period for financing a truck trailer is normally the product of a flexible agreement between you and the lender, but on average it takes 24 to 60 months. Some lenders also extend the period for specialty vehicles to seven years.
What is the interest rate on a tractor trailer?
The interest rate starts at 5 to 6.5 percent and peaks at 30 percent for truck buyers with good credit scores. For bad credit buyers, the interest range is between 7 and 30 percent per annum.
How much is a tractor trailer in the US?
Buying a tractor trailer in the US, like in any other country, leaves a sizable pocket in the range of at least $100,000 to $150,000 but this can change if you choose financing. On the high tier, however, you may need up to $200,000 to secure that new truck with more specialty features. Again, this is where financing comes handy.
What credit score is needed to buy a tractor trailer?
If buying a tractor trailer on cash, you do not need a credit score check. However, if financing a tractor trailer, on average, a good credit score of 670 is required by banks. Alternative lenders gun for a CR of 620. Bad credit applicants with poor CR of 300 and above, however, can still qualify with some lenient lenders.