Dollars & Sense
What to Expect with Expediter Truck Financing
As you shop for a new or used expediter truck, you probably need a loan to purchase that truck (unless, of course, you have a spare six figures stashed in the bank).
But financing a high-ticket commercial truck is not the same thing as getting a loan to purchase your personal vehicle. There is a higher risk involved with truck financing that impacts what lenders look for in prospective borrowers and how they structure their loans.
So, what should you expect with the truck financing process? What terms are lenders offering? What are lenders looking for in prospective buyers?
ExpeditersOnline.com spoke with John Lalonde, expediter sales representative for Fyda Freightliner in Columbus, Ohio, to get his industry outlook and advice.
EO: What are the typical loan terms available right now for expediter truck financing?
Lalonde: Financing terms for used trucks are based on specifics of the truck, such as the model year, current miles and expected miles. If the truck has, say, 500,000 miles on it, most lenders will limit the loan to about 36 or 42 months. You're not going to find a lender who will want to extend that loan much longer because the vehicle will be worn out before the loan is paid off.
For a new expediter straight truck, loans are available for up to 60 to 74 months, depending on the class truck.
How much cash should expediters be prepared to put down on a truck purchase?
The down payment can range from zero down to 20 to 25 percent, depending on the driver's credit and driving history. If you're a new driver with zero history driving a truck, your down payment is going to be higher. If you have good credit with a few years behind the wheel, then your down payment could be less.
What defines "good credit"?
Typically, it's a 650 or higher credit score, with no past bankruptcies, charge-offs, payment delinquencies, or past-due taxes. Homeownership is always a plus, or at least you want some type of installment credit history, such as on-time payments on car loans.
But a high credit score doesn't always mean that you're a strong candidate for a truck loan. Someone may have a 750 credit score but only have a $500 credit card on a credit card. That's almost as challenging as bad credit. A lot of lenders prefer to see more established credit history.
How does credit card debt impact truck financing?
If someone has their credit cards maxed out — that's not a good thing. If you have $50,000 in available credit but have used up $49,000, ultimately the lender is going to view you as a higher risk. If your truck breaks down, and you need to use your credit card to make a repair on his truck, you won't have the credit available to pay to fix the truck.
What interest rates are you seeing in the market right now?
Again it's going to be based on credit history. And the down payment is a factor, as well. If you put down a large chunk of cash upfront, the finance company will sometimes offer a lower rate. Whether the truck is new or used also impacts rate.
For a buyer with great credit, I've seen interest rates start in the upper 5 percent range. Used trucks are typically in the 9 to 10 percent range. And the rates go up from there based on down payment, credit and driving history.
How does truck selection impact financing options?
For expediter straight trucks, the biggest factor is the truck's powertrain -- whether it's equipped with a Class 7 or Class 8 engine. For example, most of your truck finance companies know that if a deal comes across their desk with a truck with a Detroit DD13 (Class 8) engine in it, they know that's a million-mile engine. And if they see a deal that has a Cummins 5.9L (Class 7) engine in it, they know that's a 500,000 mile engine.
This matters because if you're looking to purchase a used truck with 350,000 miles, the engine size will determine how long the finance company will be willing to set the loan term for. If the truck has a Class 7 engine, it will have a much shorter usable life than a Class 8 engine -- and a much shorter loan term.
What advice do you have for aspiring expediters who may have credit challenges?
If you want to be in the expediting business, and you have troubled credit, go ahead and drive for a fleet owner. Make good money, clean up your credit, pay off your bills, save a downpayment for about a year or two, and take it from there.