Refinancing Your Commercial Truck Loan: All You Need To Know

Published October 3, 2020 by WC Team

Refinancing Your Commercial Truck Loan: All You Need To Know

Commercial vehicles offer huge benefits for small and large-scale businesses. It also offers a way to build equity while making use of the available tax benefits. However, purchasing a commercial truck is never easy. 

You need to put together tons of resources and balance your finances to purchase a good-quality commercial truck. Another way is to get a commercial vehicle loan. However, loans can become burdensome due to high-interest rates as well as a mandatory down payment.

This leaves you with one other option that is not only convenient but also reduces your monthly financial burden. You can consider a commercial truck loan refinance to lower your monthly payments. 

However, it is better to consider a few important facts and factors before committing to the commercial truck loan refinance method.

Factors to Consider Before Refinancing a Commercial Truck Loan

Even though you might find the method of commercial truck loan refinance a lucrative idea, there are a few things you must bear in mind before going ahead with this decision.

Loan Refinancing Requirements

Lenders or banks have their separate refinancing conditions. Thus, you must be prepared with documents and other requirements, as stated by the authorities. After careful deliberation of the documentation you provide, the banks decide upon your eligibility.

Presence of a Prepayment Penalty 

You must find out if the bank will impose a prepayment penalty upon you. Here, you need to calculate your finances and how much you save after the commercial truck loan refinance. If you are saving more by refinancing your loan, then it is a great option.

Current Interest Rates

The current interest rate is one of the most important factors to consider before deciding on a commercial truck loan refinance. If you qualify for an interest rate lower than your existing loan rate, refinancing might be your go-to solution. 

However, if you’re qualifying for equal or high-interest rates, then it is not wise to go ahead with refinancing your commercial truck loan. 

Credit Scores

If your credit score fluctuates from time to time, you need to reconsider your decision. If your credit score has fallen, the commercial truck loan refinance option is not for you. However, if your credit score has improved, you may qualify for a surprisingly low-interest rate.

Income

Any investment or loan requires a thorough understanding and analysis of your income. A commercial truck loan can help you keep up with monthly payments if your income has reduced. 

You must balance your budget to meet your monthly refinance requirements.

Time Remaining on the Loan

Even though a commercial truck loan refinances can extend your loan term as well as reduce your monthly payments, it can also result in more interest per month. This is not very convenient in the long run.

However, if you refinance your loan to a lower interest rate than before, you will pay way less overall. If you’re still confused, you must have a look at the auto refinance calculator or seek help from a banking expert. 

What Documents Do I Need to Apply for a Commercial Truck Loan Refinance?

The process of refinancing a commercial truck loan requires you to submit several documents. This method involves transparency at both your and the bank’s end. So, you must be ready to show your personal as well as your business documents. 

Here are the most commonly asked for documents:

  • Business licenses
  • Profit-loss statements
  • Tax returns
  • Partnership agreements
  • Driver’s license
  • Federal employer identification number (EIN)
  • Bank statements
  • LLC documents
  • Cash flow statements

What are the Pros and Cons of Refinancing Commercial Loans?

Before starting your commercial truck loan refinance procedure, you must be aware of the benefits and drawbacks of the process. This way, you will be prepared for every step of the process.

Pros

  • Reduced Financing Cost: If you can achieve a better interest rate and convenient terms, your refinance loan could end up saving you a lot of money in the future.
  • Improved Cash Flow: When your loan payment reduces, your cash flow is bound to increase. These additional funds can then be used for purposes like improving inventory, increased employee payroll, better equipment, and other aspects.
  • Increased Fund Amount: If your cash flow improves after refinancing your loan, then you could get some relaxation from your bank or lender. The bank or your lender could qualify you for a bigger loan amount depending upon the debt-service coverage ratio. This would help you manage your funds more efficiently.

Cons

  • Credit Score May Drop: A bank or lender needs to make an efficient hard credit inquiry before approving your refinance loan. However, this may have a considerably negative impact on your credit score. This would decrease your credit card’s average age. So, if you’re running low on credit, refinancing is not a good option.
  • Prepayment Penalties May Be Imposed: You must make sure that your bank or lender does not put you through prepayment penalties before approving your loan. If you plan to pay off your loan early, you could suffer unnecessary penalties. This penalty may drain your savings collected through refinancing. 
  • Collateral May Be Necessary: Sometimes lenders and bank officials need collateral to secure your refinance loan. Regardless of whether you had to put up collateral in your previous loan or not, this current loan may require you to do so. Moreover, you also need to hire a property expert to find your property or asset value. This process may harm your savings and result in additional overhead expenses.

Summing Up

Finding the right bank, lender, or institution for your refinance loan may seem difficult. However, all you need is sufficient time, research, resources, and planning. We recommend looking for the best loan offers across different banks and lenders before choosing one.

Plus, you must be able to balance your savings, credit score, investments, and overall finances efficiently during this entire process. If you are mindful of your expenses and can qualify for low-interest rates, you would not only pay less every month but also save more money.

Are you a business owner? Apply for financing. Start Now.

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