Components of Commercial Heavy Vehicle Loans Businesses in India Must Know

Many businesses require commercial vehicles to maximise their operational efficiency. While some may need one commercial pick-up truck, others may need more than 50 trucks to transport goods!  Construction companies, delivery service providers, furniture suppliers, healthcare facilities, and educational institutions can benefit from a fleet of commercial vehicles.

A business may need heavy vehicles like commercial trucks, dump trucks, tractor trailers, etc., to ensure timely product deliveries and facilitate distinctive on-site operations. The demand for such commercial fleets spans across sectors. However, not all businesses are able to afford them for their operations due to the high price. This is where heavy vehicle finance companies come to the rescue! 

Several banks and non-banking financial companies (NBFCs) in India offer loans for the purchase of commercial vehicles. With a commercial heavy vehicle loan, one can easily buy trucks, tippers, buses, and various other automobiles needed for the daily operations of the business.  However, to ensure a smooth borrowing process, businesses should have a good understanding of the components of commercial loans: -

Interest Rate

The interest rate is an important component of any loan, including the ones that facilitate the purchase of commercial vehicles. It is the fee one needs to pay the lender for borrowing the money. The interest rate is typically expressed as a percentage of the loan amount.  Heavy vehicle loan interest rates have a huge impact on the overall borrowing cost. Hence, it must be carefully considered. This interest rate is influenced by several factors, including the lender, loan repayment tenure, credit score, and current market conditions.

A credit score is likely to play a huge role in determining the interest rate of the heavy vehicle loan. Hence, before applying for a loan, it would be a good idea to check the credit score and work on improving it if needed. Doing so can help get better interest rates, as well as improve the chances of having the loan application approved.

Loan Repayment Tenure

Loan term or loan repayment tenure is the length of time within which one must repay the heavy vehicle loan amount. Most commercial vehicle loan tenure ranges from 36 to 72 months. However, several heavy vehicle finance companies may offer shorter or longer terms. As a borrower, one should go for loan tenure that keeps the EMIs budget-friendly.

While shorter loan repayment tenure has higher EMIs, they can save businesses money on interest payments in the long run. The situation is the opposite in the case of a longer repayment period. To select the right heavy vehicle loan term, businesses should properly evaluate their monthly budgets and consider future financial goals. This can aid in zeroing in on an EMI amount, which can be paid off without straining the cash flow.

Down Payment

The down payment is the initial sum of money one has to pay upfront when buying the necessary heavy vehicles, whether it is a single dump truck or multiple commercial trucks. It is a percentage of the purchase price of the asset. Paying a substantial down payment can lower the loan amount, reduce the overall borrowing costs and potentially lead to a better interest rate. While most heavy vehicle finance companies give up to 100% of the ex-showroom price of the assets, it is still better to pay as much as a down payment as possible.

Total Loan Amount

The total loan amount is the principal sum borrowed by businesses to buy the necessary heavy vehicles minus the down payment. In addition to the cost of the commercial vehicles, this may also include any fees or taxes associated with the purchase. One must have a proper understanding of the total loan amount to budget the repayment. It is best to avoid financing additional products. Including unnecessary extras in the loan would simply increase the loan amount, EMIs, and overall costs.

Heavy commercial vehicle loans are fruitful financial instruments and can be advantageous for businesses of varying types. Understanding their important components can significantly help businesses identify the appropriate loan option.