Commercial Truck Financing – What Affects Interest Rates?
If you are in the trucking business or you would like to get into the industry, you will need several trucks. You can decide to use your own funds to purchase the truck, or you can get financing. The second option has many benefits for businesses. For one, the capital you have is best used for other important functions, such as marketing and payroll. Therefore, it should not all be tied up in an asset that depreciates with every passing minute. With Truck Finance Online, you can pay a small deposit and use the truck in your business to generate revenue, which can service the loan.
Factors to Consider
When looking for truck financing, there are many factors you have to consider. The first is interest rates. The lower the interest rate offered by a financier, the better. Secondly, you have to consider the down payment required by the financier. The lower the deposit the better. Before committing yourself, you must go through the terms and conditions of the loan as well as the loan requirements. This will give you a clear picture of the type of finance you’re procuring.
What Affects Interest Rates?
The interest rate charged on a loan is the cost of borrowing money. It is natural for consumers to search for loan products and financing that comes with a low interest rate. Knowing the factors that affect the rate of interest quoted by lenders can help consumers to make informed decisions time and again. Below are some of those factors:
i) Credit Rating
Credit scores measure the creditworthiness of an individual or business. The higher the credit score of an individual or business, the lower the rate of interest they can get from lenders. Similarly, borrowers with a low credit score can expect to pay higher interest rates on their loans. That is why consumers are always advised to take care of their credit. Please note that lack of a credit rating is usually considered to be the same as bad credit. Therefore, new businesses also have to pay higher interest rates.
ii) Desired Profit Margin of the Lender
Some lenders usually want a wider profit margin while others can do with a slim margin due to the large number of clients they serve. When looking for financing, therefore, you should work with larger companies that charge the lowest interest rates. It is recommended you shop around to compare the interest rates charged by different financiers before making your final decision.
iii) Government Policy
It is the responsibility of the government, through the Central Bank, to manage the economy, especially inflation. When there is high inflation, the government will raise the base interest rate to attract money from the public and discourage borrowing. This means that you will have to pay a higher rate of interest. Similarly, if there is deflation, the government will lower the base lending rate to encourage people to procure loans and discourage investors from purchasing treasuries or saving their money in banks.
iv) Down Payment
The interest charged by lenders is usually a measure of risk. Higher interest rates are usually offered to clients who are seen to be risky due to their bad loan repayment history and vice versa. To limit this risk and potentially get a cheaper loan, borrowers should consider paying a bigger down payment. If you can manage to pay 30% to 50% of the purchase price, most lenders will be willing to lower the interest rate because your stake in the truck will be too large for you to even consider defaulting on your payments. A bigger down payment also means that you will finish servicing the loan faster and pay less interest.