How to get a semi-truck loan

A semi-truck is a significant financial investment, but many people don’t have the cash to purchase outright.

Financing the costs of a semi truck may seem like the perfect solution because it offers startups and established businesses an affordable way to acquire the capital needed to make this large purchase. But you’ll want to know more about how to get semi-truck financing and the buying process before committing.

Check your credit

Your credit score affects your ability to obtain semi-truck financing, and it affects what interest rate and term you receive from the lender. Before applying for a semi-truck loan, check your business credit score.

Business credit reports and scores are available from several credit bureaus, including Dun & Bradstreet, Equifax, Experian and FICO. But lenders may also check personal credit when assessing creditworthiness.

Once you’ve confirmed your score and reviewed your report, you can decide how to proceed. Several lenders offer bad credit business loans, so you can apply for financing even if you have a low score. But if you prefer to wait and improve your score, take a look at your report to address any errors or discrepancies and pay down debts before applying for funding.

Save for a down payment

When getting semi-truck financing, the down payment depends on the lender, the borrower’s credit profile and the truck. The down payment is your contribution to the purchase before getting a loan for the rest of the amount. The down payment cost typically ranges from as low as 10 percent to as high as 35 percent.

So if you’re looking at a new truck that costs $250,000 and the lender wants a down payment of 20 percent, you’d have to come up with $50,000 ($250,000 x 0.20 = $50,000).

Borrowers with good-to-excellent credit scores and a solid financial history may qualify for no down payment. Plus, a down payment may not be required if a borrower has a long-standing relationship with the lender.

Determine how much truck you can afford

Determining how much truck you can afford is an important step in the buying process. First, calculate your business income and expenses to understand how much you can comfortably allocate toward truck payments. You may have plenty of money coming in, but rent, utilities, inventory and supplies are expensive. Laying out all your costs can give you the full financial picture.

Then, consider how much you will need in order to buy the truck and how much you may pay in interest and fees. You can use Bankrate’s business loan calculator to get a more accurate idea of your potential monthly payments. The total cost of your semi-truck loan factors in interest — ranging from 6 percent to 30 percent — as well as loan fees and the down payment.

Find your semi truck

When it comes time to find your semi-truck, you’ll have to decide if you want new or used. Lenders often have restrictions on the type and age of vehicles they will finance. They may also require an appraisal of the vehicle, especially if it is used.

Since the truck is used as collateral, its cost impacts the amount of financing you’re able to secure. A used truck will be less expensive, so consider your budget as you weigh your options. You should also determine what amenities and type of transmission you want.

Find the right type of semi-truck loan

You can have your pick between several types of loans to finance your semi truck, including equipment loans, SBA 7(a) loans and term loans.

Equipment loans

Equipment loans are typically more accessible than traditional business loans. The information factored into approval is similar, but the requirements, such as credit score, time in operation and annual revenue, are often more flexible. This is especially true if you secure a loan through an online lender.For example, a lender may only require a 600 personal credit score and six months in business to be approved for an equipment loan.You can also find semi-truck loans designed specifically for financing a semi truck. These loans may come with no down payment, have flexible payment options like seasonal payments and may accept nearly all credit scores.

SBA 7(a) loans

SBA 7(a) loans can be used for various purposes, including purchasing equipment. Loan amounts range up to $5 million, with repayment terms of up to 10 years for working capital loans.

The lender determines interest rates; but they can’t exceed the maximum SBA loan interest rate, which is currently between 10.75 percent and 14.25 percent for variable-rate loans and 12.75 percent to 15.75 percent for fixed-rate loans. The SBA also charges a guarantee fee ranging from 0 percent to 3.75 percent of the guaranteed portion of your loan.

Term loans

Term loans from lenders may also be used to purchase a semi truck, which gives you a lump sum that can be used to cover any business-related cost. You’ll repay the loan over a specified term like five years with interest. Rates, terms, loan amounts and fees vary based on the institution, but not every business will qualify for a term loan from a bank since the requirements can be strict. If you don’t think you’ll qualify for a bank loan, a bad credit loan from an alternative or direct lender may be better.

Semi-truck loan vs. lease

If you’re not sure if buying is the right choice, you can lease instead. The best option depends on the borrower’s specific needs and financial situation.

One key difference between a loan and a lease is ownership. With a loan, the borrower owns the truck once the loan is paid off. You can keep the truck or sell it to recoup the value if you need a newer truck. With a lease, the borrower rents the truck and doesn’t take ownership unless they can purchase it at the end of the lease. You may opt for a lease because it often comes with lower monthly payments than a loan, and you can switch out trucks for a newer model at the lease’s end.

But it’s important to note that leases come open- or closed-ended. Open-end leases don’t come with restrictions, but closed-end leases require drivers to stay within a certain number of miles during their lease term. You may charged fees if you go over the restrictions in the lease.

Check your eligibility

When applying for any type of equipment loan, including a semi-truck loan, you should review the following factors to confirm your loan eligibility:

• Credit score: Lenders will evaluate your business or personal credit history to understand how well you can manage debt.
• Annual revenue: The lender considers your annual revenue to assess your ability to make monthly payments and avoid defaulting on the loan. Lenders may require you to have $100,000 to $250,000 in annual revenue, though some will fund a startup.
• Debts: Lenders will assess how much debt your business currently has compared to your revenue. They may use the debt-service coverage ratio to see how much more revenue you have compared to your debt. Typically, lenders like to see a DSCR of 1.25 or higher.
• Time in business: Most lenders require businesses to have been in operation for at least two years. But some lenders will consider businesses at least six months old and select startups since the truck acts as collateral and lessens the risk of lending money to risky borrowers.
• CDL:  Lenders may require the business owner to have a CDL. Lenders want to ensure if a business loses its driver, business income won’t be impacted because the owner can get behind the wheel until a new driver is hired.
• Business insurance: You will also need insurance in place to protect your semi truck and your business in order to get approved for a loan. The different types of coverage protect the business, the truck, the driver and any cargo being carried.

Compare lenders

Each lender has its own unique terms, rates and eligibility criteria. Comparing lenders can ensure borrowers find a suitable semi-truck financing option. It can also potentially help them save money on the total cost of the semi-truck loan.

Banks and credit unions

Banks and credit unions offer equipment and term loans with competitive rates and terms. But lending requirements are some of the strictest you’ll run across. To qualify for financing with a bank or credit union, you usually need to be an established business with good-to-excellent credit and high annual revenue.

Alternative lenders

Compared to banks and credit unions, alternative lenders have relaxed lending requirements that allow borrowers with bad credit or less than two years in operation to get funding. These types of lenders operate online, so there are no brick-and-mortar locations. The application process is streamlined, allowing approved businesses to get funds in as little as one to three business days.

Direct lenders

A direct lender is a good option if you don’t think you’ll qualify for a bank loan or prefer to work with industry specialists. You probably won’t get rates as good as banks and credit unions offer, but direct lenders are semi-truck experts who can tailor the semi-truck financing to your needs. And similar to alternative lenders, they accept borrowers with bad credit or limited time in operation.

Get preapproved

Getting preapproved gives borrowers a better understanding of the loan terms they are eligible for, including the loan amount, interest rate and loan term, and helps them decide if semi-truck financing is affordable. The lender will show you a loan offer without performing a hard check on your credit. This option works well when comparing multiple lenders so that you don’t hurt your credit score while you’re shopping around.

After choosing a lender, see if there’s a preapproval option available. If you know you can afford the loan and have high odds of approval, you can shop for your semi-truck confidently.

Apply

Finally, you can apply for your semi-truck financing. A semi-truck loan application will ask for information about your business and the truck you wish to finance. You’ll also submit business documentation — including bank statements, licenses and tax returns.

Once your application is submitted and approved, review the loan agreement and confirm the loan amount, repayment terms, fees and consequences of default. Most lenders seize the truck if you default on the loan, but you want to confirm how your lender handles borrowers who can’t keep up with their loan payments. Once you understand all terms of the loan, sign on the dotted line to finalize the loan agreement.

Bottom line

Getting a business loan for a semi truck could be the answer if you want to purchase or upgrade your trucks. Before applying, evaluate your credit score, income and time in business to determine your eligibility and calculate how much truck you can afford.

Then, you can compare multiple offers from lenders and choose the one best suited to your semi-truck financing needs. If you don’t qualify for a semi-truck loan, you can research other financing options available in order to receive the funding you need.

Frequently asked questions

• What is the average payment on a semi-truck?

  Semi-truck loan payments are based on various factors, including how much the truck costs, loan interest rates and the term you choose. For example, a loan for a $150,000 truck over five years with a 10 percent interest rate will cost around $3,200 per month for the loan. To see how much you could pay for your loan, enter the loan amount, interest rate and term into Bankrate’s business loan calculator.

• How long can you finance a semi-truck?

  Typically, you can finance a semi-truck for 12 months to 60 months, but some lenders offer extended repayment periods of seven years or more.

• What is a good credit score to buy a semi-truck?

  A credit score of 670 and above will help you to qualify with most lenders and help make the semi-truck loan more affordable. But you can also get a loan with a credit score of 500 or higher, but the interest rates and fees will be much higher.