Truck Finance
INTRODUCTION:
Open avenues for the growth of your business with truck finance.
Increase your annual revenue with timely and sound delivery of your materials. Invest in a truck.
And if you don’t have the funds for it right now, you don’t have to delay it any longer.
No, we are not telling you to squander away your full savings.
Truck finance can be your go-to option.
WHAT’S THE DIFFERENCE BETWEEN FINANCING AND LEASING?
Some investors and financers use truck finance as an umbrella term. That is, they include both lease and loan under truck finance.
For others, financing a truck means taking a loan to buy a truck.
In this article, by finance, we mean, a commercial vehicle loan.
Let us now tell you the difference between financing and leasing.
The basic difference between the two rests in the terms of ownership.
In layman’s terms, a truck lease means renting a truck from its owner for a specific duration. The owner is called the lessor. You pay the monthly rent to the lessor for the truck.
However, it is not a simple rental. With a lease, you have the option of buying the truck. This, of course, is applicable when the lease term ends.
You do not own the car during the lease period.
But, as usual, there is an exception to this.
In a chattel mortgage, you are the registered truck owner. All other terms and conditions, including payments, are the same as that of a lease. After the lease ends, you have to make a balloon payment for your truck.
Now coming to truck finance.
In truck finance, you borrow a sum of money from a financial institution or a private moneylender. You use this money to buy your truck. So, the truck is legally yours. And now, you have to pay back the loaned amount with interest.
The exception in this case – Commercial hire purchase (CHP). In a CHP, you can use the truck for your business needs. But it is not yours until you make the payment in full for the loan.
There are a few other differentiating points between a lease and a loan.
1. DOWN PAYMENT:
A truck lease covers the total cost of the truck. So, you may or may not make a down payment. If you do, it will reduce your monthly payments. But the total cost of the lease remains almost the same.
Truck finance covers a major part of the heavy vehicle. It covers almost 80% of the total cost of the truck if you buy a new one. It covers roughly 75% of the cost of the truck if you buy it second-hand. But the remaining amount you will have to pay from your pocket. It will be the down payment for your loan.
Making a handsome down payment is beneficial for a loan. It will reduce interest. Hence, you will get an attractive discount on the total cost of the commercial vehicle loan.
2. BALLOON PAYMENT:
If you buy the truck at the end of your lease term, you have to make a balloon payment. Otherwise, not.
When you are opting for truck finance, you may or may not make a balloon payment. How do you decide?
If you decide to make a balloon payment, the lender will levy a lower interest rate on your loan. If you decide against a balloon payment, your regular loan repayment will amortize your total loan cost.
3. INTEREST:
When it comes to the interest rate, a loan and a lease differ in two aspects.
a) Interest rate–
The interest rate on a truck lease is fixed.
The interest rate on truck finance may be fixed or variable during the entire term of the loan.
b) Principal –
In a truck lease, the interest is charged on the depreciation cost of the truck. That is, the depreciation value of the truck is the principal amount for a truck lease.
In truck finance, the interest is charged on the repayments.
4. REPAYMENT TERMS:
For a truck lease, you need to pay every month. How much you pay every month is decided by your lessor. You can negotiate the value. It depends on several factors. The factors include:
- Duration of lease
- Balloon payment (if you buy the car at the end of the financial lease or the end of the chattel mortgage)
- Down payment (if any)
- Money factor
- Type of lease
In truck finance, the repayment terms are flexible. For starters, you don’t pay monthly. You can pay annually, quaternarily, quarterly, or monthly. Negotiate with your lender on what suits you.
5. COLLATERAL:
A truck lease provides you with the advantage of no collateral. But this means a higher interest rate.
In a chattel mortgage, your truck is the collateral.
When you buy a truck with truck finance, it is given that your vehicle is your security deposit. You can use it, you own it. But, if you fail to repay, your lender can possess your truck.
6. TERM DURATION:
You can lease a truck for a duration between 3 years and 5 years. You can extend the term up to 7 years and not more.
Truck finance means you have to repay the loan within 5 years to 7 years. For a very high price loan, the term can be extended up to 10 years.
7. PRE-PAYMENT PENALTY:
If you cancel a lease before its full term or decide to buy the leased truck, this is what happens. You have to pay a heavy penalty for voluntary termination of the lease contract. Another loophole? You cannot cancel the lease or buy the truck until you pay at least 50% of the total lease cost.
With truck finance, you can be at peace. Suppose you make a major profit. And you get the cash in hand that you require to cover the loan cost. You can exit the loan at any time by making the full payment. Forget about any pre-payment penalty. You may also get a rebate on the total loan cost if you pay early!
8. RESTRICTIONS:
When you lease a truck, you have to remember that you don’t own it. Hence, you cannot make any modifications to it. You have to take very good care of the truck to avoid any damage. Or else, your lessor will fine you.
Finance a truck and use it any way you want. Modify, upgrade, decorate, or damage. No worries about a fine!
9. TAX DEDUCTIONS:
When leasing, your truck is your expense. Hence, you get tax benefits on your monthly instalments.
When financing a truck, your tax returns cover depreciation.
10. TOTAL COST:
A lease is costlier than a loan in the long run. This is because of the monthly fees and many other hidden charges.
CONCLUSION:
For SMEs especially, deciding whether to lease or finance is a tough call to make.
We help make it easier for you.
Finance Brokers NSW has been working in the finance sector for 36+ years. We have a customer-oriented approach. Our team lays out financial options that target making the best investment for your company.
We provide you with the best loan terms and repayment offers, thanks to our extensive connections in the industry.
Contact our financial brokers today for guidance.