Avoid these 5 common mistakes when applying for truck finance.

Wednesday 15 March, 2023

In this blog, we will look at five common mistakes to avoid when considering a truck finance deal. Understanding these will keep your business and cash flow on track so you can get on with the important things.

1. Not understanding your budget

It is important to have a realistic budget and know how much you can afford before you start looking for your truck. This way you don't run the risk of overextending yourself financially.

Many businesses don't have the luxury of affording a new truck so considering a quality used truck may be a better option. However, like any new equipment financing, you may get better interest rates and a more favorable term on a new vehicle purchase. Add the potential for breakdowns, more downtime and higher maintenance costs on second-hand vehicles and any savings you make on repayments may be negated by the future impact on your business's cash flow.

Seek expert advice from your financial advisor or finance broker, before you determine your budget. They can look at your overall financial situation and give you all the options available to help you achieve the best possible outcome for your business.

2. Not fully comparing the different finance options available

We have discussed the different financing options available to your business, in our previous blog "The Complete Guide to Machinery Finance". It is important to understand these options as many businesses fail to consider all the truck finance options available to them.

There are other factors you should along with the type of financing you think best suits your businesses need:

Does the finance meet the needs of your business?

It's important to select the right finance to meet both your short and long-term needs. For example, if your truck needs to be upgraded regularly, then locking into a long-term loan, such as a chattel mortgage, may not be the right option for your business.

If you are a new business or have a poor credit history, you may find your eligibility with different lenders is limited.

Is the finance flexible for your business?

Regardless of the equipment financing option, you choose, selecting a monthly payment and term you can comfortably afford will save your cash flow and support your business's growth.

Are you considering a balloon payment?

One way for small business to keep their monthly payments manageable is to opt for a balloon payment. This type of equipment financing allows your business to pay a lower monthly payment and at the end of the agreed term, as you won't have paid the full loan amount, you will be required to pay an agreed residual value.

The amount of your monthly payment will determine the amount paid. Generally, the lower the repayment, the higher the balloon payment will be. This type of loan can be a great option to keep your monthly costs down. However, you should consider the impact on your cash flow at the end of the loan term. Lenders may agree to a new loan to refinance the residual amount but in the long term, this could be far more costly.

3. Not considering all the costs involved in purchasing your new truck

As well as the ongoing monthly repayments, many business owners fail to consider the overall cost of ownership. This includes not just the purchase price, but also lender's fees and ongoing expenses like maintenance, repairs, fuel, registration and insurance.

Don't forget the loan setup fees!

Each individual finance company will have its own fees and charges. These may include establishment fees, monthly accounting fees, stamp duty, and of course interest. It pays to compare these charges before you decide on the best deal for your business.

What about the running costs?

Who is responsible for the ongoing running expenses? Generally, if you finance your truck through a chattel mortgage or other types of secured lending, you will be responsible for the maintenance and upkeep of the vehicle.

If your business's cash flow is tight, you could consider leasing rather than buying as some of the running costs are included in the monthly payment. This can include fuel and routine servicing. However, it is important to understand that you will not own the truck so there will be limitations on its use. These may include the number of kilometers you can travel each year and modifications you can make. There will be monetary penalties for failing to comply with these requirements and these can be costly!

The overall cost of owning a truck is an important aspect that businesses tend to overlook when buying equipment. So, make sure you have a clear understanding of all the costs associated with owning and operating the equipment before you make any decisions.

4. Purchasing the wrong truck for your business

Do your research before purchasing your new truck – make sure it’s right for your business needs! Investment in machinery that doesn’t suit your business's requirements can be costly.

Buying second-hand vehicles can be one such instance. Breakdowns, costly repairs, and down time can lead to a vehicle that impacts your cash flow over time and may result in you needing to replace your truck earlier than expected.

During these breakdown periods, you will not only need to meet your monthly payments, but you will pay additional money on interest and fees.

The existing loan could also impact your credit history and limit your ability to finance the vehicle you need to make your business profitable.

5. Trying to find the right finance option yourself:

Dealing with lenders and other finance companies can be time-consuming and with so many different loan and finance options available, it can be hard to make the right choice to save money and time.

Working with a finance broker, who specializes in truck finance or equipment financing, can make the difference. They will get to know your business and your expectations and research the best lender for your circumstances.

They can give you all the facts and provide valuable insights into any potential financing pitfalls so that you can hopefully avoid them altogether!

Speak with the Team at Finance Brokers Tasmania

If you have any questions when it comes to financing or truck finance or your next vehicle, be sure to speak with one of our friendly team at Finance Brokers Tasmania. With over 36 years of experience and access to a panel of over 40 lenders, you can be guaranteed that Finance Brokers Tasmania will find a deal and lender to meet your needs.

With our expert guidance, we can help you avoid these five common mistakes and allow you to focus on the right equipment to help your business grow.