Many in the transporting business (or those planning to start on the business) want to become owner drivers in order to clock a much higher income week in week out. However, trucks and other heavy vehicles come expensive and rarely can one finance the purchase of a truck out of his pocket. As such, the only way out is to find help with a truck loan.
Now, obtaining truck finance in Australia can be easy or it can be a tricky affair, depending mostly on the current status and position of the applicant, but also on who you are applying to. Requirements for getting approved vary (often a great deal) from one finance company to next, and so do interest rates, repayment terms and other important metrics.
Truck Finance as Unsecured Loan
As for financing options, typical truck finance options include secured loans, unsecured loans, and secured lease. Secured loans, i.e. those that are obtained against collaterals, come with radically different requirements and as such, are outside the purview of this article. Similarly, the requirements for Secured Lease or Lending Products (such as HP Purchase, Chattel Mortgage, Truck Rental or Truck Lease) vary considerably from when you are purchasing a new or old truck through a so-called ‘unsecured loan.’
Accordingly, in this article, we will focus solely on the various requirements regarding truck loans that are obtained without putting up any sort of collateral. Now, to begin with, we believe it is best to seek this type of truck finance from companies specializing in truck and heavy vehicle finance or from car loan companies in general that also deal in heavy vehicle financing. Most truck sellers as well as dealers will already have tie-ups with a number of such companies. You may apply to any of those companies for financing. However, we recommend that you do your own market research before heading to a dealership. This way, you get to increase your chances of clinching the best possible deal.
Truck Finance Requirements
Background of the applicant
While there are truck finance companies willing to finance a new driver, others may require that the applicant is in the business typically for at least 12 months prior to the loan application. Also, even if a company is ready to consider a truck purchase by a new driver, it may still require that the applicant already has formed a registered company (since many transport companies will only recruit contractors with a registered ABN).
In addition, the company may perform background check with regard to whether the applicant has had stable employment either as a machine operator, or better even, as a truck driver in the recent past. If the applicant has a registered business, some companies may also look into the administrative support the business has in place—for instance, whether it has an accountant or bookkeeper and/or an office manager in its payroll.
Proof of income and cash flow projection
In case of a new start business, most companies will require that the applicant submit a cash flow projection report detailing the expected income and expenses for the period of the next 12 months. Again, if the applicant is planning to buy an existing truck from an in-operation transport company, the financier may require that the applicant already has carefully studied the financial statements of the transport company he is planning to buy his vehicle from.
Confirmation of work
Again, some finance companies may require that applicants provide some documents as proof of confirmation of work for the newly bought vehicle. These can be a letter from a work source/transport company (confirming that the applicant will be hired as a contractor earning a designated amount per week), or better even, a work contract (detailing pay rates and other terms) between the applicant and the transport company he will be working for.
Down payment, insurance and applicant assets
Considering the high-risk nature of an unsecured loan, almost all companies will require that the truck loan applicant pay an upfront deposit (down payment) to the truck vendor. Typically, an applicant will need to pay anything between 10 and 25 percent of the original value of the vehicle (the deposit percentage will depend on a range of factors discussed throughout this article, i.e. new or running business, credit score, age of the vehicle in case one is looking to buy an old truck and so on).
Credit team of a truck finance company will also often check into the area of asset backing of a borrower/applicant. If the latter can show good equity in property, he’ll obviously stand a good chance of getting approved for the loan. If the vehicle suffers a major breakdown, the financier can raise funds for necessary repairs against the assets of the applicant.
Whether you are looking to buy a new or old truck, almost all companies will ask for vehicles insurance papers given that your application is already approved. Take note that in case of new truck loans, some companies also offer to include the insurance costs in the loan amount.
Purchasing an old truck
Most vehicle finance lenders will not agree to finance a truck older than five to seven years at time of purchase. However, companies that DO finance vehicles that old will typically apply a risk rating to the base interest rate, in addition to asking for a considerably larger upfront deposit.
And finally, many will be curious as to whether a poor credit rate can translate into non-approval of a truck loan application. Once again, this will depend on the company one is dealing with as well as exactly ‘how poor’ the applicant’s credit rating is. However, one thing for sure is that an adverse credit rate will obviously prove a disadvantage to the applicant. If his application is not outright rejected, a low credit rating will, at the very least, mean that he will have to pay steeper interest rates than if he showed a healthy credit score.
To cap it up, the good news for all Australian wanting-to-be-owner drivers is that Australian truck finance sector in general is considered to be in a healthy state. For the past few years, it has been highly market-friendly, so much so that a number of other countries are known to follow its example and principles. So, devote time and effort in research, do your due diligence, and it may not be too difficult to find finance for your truck at favorable enough terms.
