Whether you’re starting out in the trucking industry or looking to expand your fleet, the largest investment will be in a single semi or an entire fleet. There are different ways to secure semi truck financing, from bank small business loans to direct commercial truck loans. Competitive semi truck financing rates often make this possible with even small startup funds.
As with any loan, the best semi truck financing has the lowest interest rate and terms that your business can comfortably meet, from downpayment to time of repayment. If you’re wondering how to finance semi truck purchases this year, here’s what you need to know to get the best semi truck financing rates to keep your cash flow steady:
How Do Semi Truck Financing Rates Work?
Semi truck financing rates depend on each lender’s specific criteria but credit score is usually taken into account along with down payment, time with a commercial driver’s license (CDL), age of the business, and even the age and mileage of the trucks.
Here are some of the FAQs about semi truck financing:
What Is the Interest Rate on a Semi Truck?
Semi truck interest rates from lenders are generally between 5% and 30% annually. Credit scores of both you and the business, the age of the business, and the type and condition of the truck will all impact interest rates.
With a credit score in the high 600 or above, and if you’ve been in business for at least a few years, the interest rate on a semi truck could be as low as 5-6%. If you’ve just gotten your CDL and opened a business, or if you have a low credit score, interest rates will range from 7% to 30%.
The age and financial state of the business can have a big impact on interest rates. Even if you personally have a high credit score, if your business has a low credit score, or no credit score, the interest rates will be higher.
How Long Can I Finance a Semi Truck?
Truck loans can last from 12 to 84 months and terms for a specialty vehicle are 36 to 84 months. The duration of the loan will depend on the lender, your credit history, and the age and type of the vehicle.
How Much Is a Down Payment on a Semi Truck?
Down payment requirements will vary by lender. First-time buyers usually need to make a 20 to 30% down payment on a semi truck. The amount of time you have had your commercial drivers license (CDL) is also a factor in your down payment amount. Drivers with a minimum of three years of verified driving experience qualify for better financing terms.
Can You Finance a Semi Truck With Bad Credit?
Yes, it is possible to get semi truck financing from an alternative or direct lender, even with bad credit. The truck itself serves as collateral in this case. There are a number of direct lenders that advertise working with those with bad credit and may be more open to approving borrowers with poor credit histories.
What Credit Score Do You Need to Buy a Semi Truck?
Credit score requirements will vary by lender Most lenders require a credit score of at least 600 or higher. Of course, the higher your credit score, the lower the interest rate, and also possibly the lower the required down payment.
Beyond your credit score, to get semi truck financing you also must be able to demonstrate driving experience and an established revenue stream. You can increase your odds of getting financing by demonstrating different types of credit and having a credit history of at least 7 to 10 years.
What Are the Requirements for Semi Truck Financing?
When applying for semi truck financing, you’ll want to prepare all the required documentation to facilitate the process. This includes the following:
- Your credit score or credit information
- The make, model, and mileage of the truck you plan to purchase
- Where you plan to purchase the truck
- Number of years of CDL experience
- Number of years in business
- The business credit score
- Proof of downpayment
- Proof of truck insurance, or plans to purchase
Things to Consider with Semi Truck Financing Rates
When you apply for financing, you’ll want to consider the semi truck financing rates in the context of your business. That means you’ll be looking for the best interest rate, downpayment terms, loan terms, and loan amount for your business, without any hidden fees. Here’s what to look for in each of these:
Interest Rate
Semi truck interest rates can vary greatly and can make the difference of thousands of dollars a year for your business. Lenders generally charge annual interest rates based on borrowers creditworthiness. This ranges from 5% and 30%. Good credit and a long history both as an individual and for the business will result in the most favorable rates, closer to 5%-6%.
Poor credit history, or a lack of business credit history will result in higher interest rates. Someone who is new to the trucking industry will also face higher interest rates. Lenders set semi truck financing rates in these cases between 7% to 30%. Interest rates on new trucks will usually be lower than on used vehicles, even with a poor credit score.
Down Payment
It is important to calculate how much you can afford and then shop around for the most favorable terms. Most lenders will require at least 20% in down payment. In an industry where a single truck can cost more than $100,000, a 20% downpayment is not an insignificant business expense.
There are some lenders that offer a no money down option for borrowers with good credit history. When researching possible lenders, note minimum down payments and credit thresholds for interest rates, or request an estimate from them.
Loan Terms
Semi truck loan terms also vary based on the type of truck, and the lender’s own policies. Terms typically last from 12 to 84 months. The term length, and any other terms, like fines for early repayment or late payments, are set by individual lenders based on the borrower’s credit profile and the type of vehicle.
Loan Amount
For commercial vehicle loan rates, you can still qualify for up to 100% of the vehicle value if you have an excellent credit score and an ideal borrower profile. This is a best-case scenario in which the lender is confident you will not default on the loan. However, in most cases, you will need some type of down payment. In many cases, you can still get a loan for a lower down payment, from 5% to 15% so that you will be able to finance 75% to 95% of the truck’s value.
Fees
Some lenders, especially lenders that advertise loans for borrowers with low credit scores, will charge additional fees. This can include fees of applications, credit checks, appraisals, and even additional monthly or annual fees. Those fees can add significantly to the cost of a loan. To find the true cost, ask a lender for the APR of the loan. With the APR, you can accurately compare loan amounts.
Advantages of Semi Truck Financing
The advantages of semi truck financing are that it allows you to become an owner-operator or expand your fleet without impacting business cash flow. Owner-operators have a much greater potential to increase income than a truck driver, allowing a driver with a few years’ experience to expand into their own venture. The other pros of semi truck financing include:
- Lower upfront costs
- Tax benefits, such as business expense deductions
- Repayment schedules
- Option for 0% down with high credit scores
- Comprehensive resources including higher-paying freight and 1-hour advance options* through companies like TAFS.
In addition, if you are looking for a smaller loan, up to $25,000, these can be obtained from banks at even lower interest rates and with longer terms with a good credit score.
*1-hour options are not gauranteed
Disadvantages of Semi Truck Financing
While there are many advantages to semi truck loans, they are not without risks. A typical semi truck could cost $100,000 or more. If the business is not generating enough cash flow or the new truck is not carrying enough loads, the repayment costs could put a financial strain on the business.
In addition, if the interest rates are high, you will end up paying significantly more over time. Especially if you are new to trucking, building up a few years of experience or leasing a vehicle until you are eligible for lower interest rates and lower down payment can mitigate the high interest rates.
Banks vs Alternative Lenders for Semi Truck Financing
Banks offer the advantages of a traditional lending institution, including clear terms. You can also benefit from an existing business relationship with the bank if you’ve had a checking account or another account with them. This can sometimes lead to lower semi truck interest rates or more favorable terms. It can also help you get approved for the loan.
The disadvantage of a bank loan is that the application and approval process can take significantly longer. If you don’t have good credit, even with an existing account you might be denied the loan.
In contrast, online lenders approve applications relatively quickly. These alternative lenders will often approve borrowers with low credit scores or less experience. If you’re just starting out and looking for semi truck financing, an alternative lender is often the best choice.
Be sure to thoroughly review contracts and fees when comparing before deciding on an online lender, as interest and fees can add thousands to the total loan cost.
Build Your Business with Semi Truck Financing
Whether you just obtained your CDL or are looking to grow your fleet, you can now obtain semi truck financing that will enable you to quickly grow your business. If you’ve dreamed of building your own business in a sector that is rapidly growing, there has never been a better time to enter or expand within the freight space. With semi truck financing rates as low as 5%, shop around for the best semi truck financing options for your business.
If you’re ready to start or grow your business, TAFS is an industry leader specialized in helping trucking companies of all sizes increase cash flow and lower operating costs. With factoring rates as low as 2.49% for trucking companies, as well as a 1-hour advance, they are open 365 days a year to help you succeed. TAFS offers more than freight factoring including business loans and fuel card discounts – helping you with the cash flow and grow your business.
Sign up for a FreightWaves e-newsletter to stay informed of all news and trends impacting supply chain careers and operations.
