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Tips for comparing truck loans
A truck loan is a specific type of loan used for the purpose of purchasing a vehicle, such as a truck, van, truck, motorcycle, or other motorized vehicles. A truck loan is typically used when the borrower cannot afford to purchase the vehicle with cash, but can afford to pay off a loan in monthly instalments.
Types of truck loans
New truck loans are for buying brand new trucks (lenders will offer new truck loans for trucks for up to five years old) where the interest rate is likely to be lower. A new truck loan will typically use the truck as an asset to secure the loan.
Used truck loans are available for trucks that are five year old or more. A used truck loan is usually a secured loan, with the truck as the asset.
Unsecured truck loans are available for older trucks that banks do not see of value in securing. Unsecured loan interest rates are typically higher than secured truck loans.
Pros of a truck loan:
- Truck loan payment terms can be up to 10 years
- Borrowers can borrow large amounts with most financial institutions
- The debt is fixed, meaning that repayment made will lower the premium and no more debt can be added
- The average interest rate for a truck loan is usually lower than other loans such as personal loans or credit truckds
- A fixed interest rate loan makes it easy for the borrower to plan repayments and stick to a budget
Cons of a truck loan:
- Some financial institutions will place restrictions upon the makes and models of vehicles it will accept for a truck loan
- Borrowers can not increase the amount of debt to cover operating or maintenance costs
- The truck can be repossessed (in the case of a secured loan) or the borrower taken to court (in the case of an unsecured loan) if the repayments are not met
Who can apply for a loan?
Most permanent residents of Australia are eligible to apply for a truck loan if they are 18 years or older and can verify their income. While many financial institutions will turn down the loan application of a prospective buyer with poor credit, there are some institutions willing to lend to someone with a poor credit history if the loan is secured against the value of the truck.
What other types of truck loans are available?
In addition to the secured new and used truck loans and the unsecured truck loan discussed above, you could compare truck loans based on features such as early repayment fees, repayment schedules and up-front fees.
A truck hire purchase is another option for the prospective borrowers. Each payment made towards a truck hire purchase reduces the purchase price of the truck.
A truck lease is yet another option for the borrower to have a vehicle for business use. In this case, the financial institution purchases the truck and the borrower makes payments on it for an agreed-upon term in exchange for the use of the truck.
A novated lease is the when an employer makes an arrangement to pay a lease out of the borrower’s before-tax salary. At the end of the lease period, the borrower will have the option of purchasing the truck or upgrading to a new model. This is a great option to reduce your taxable income at the end of the year.
What else should you consider when you compare truck loans?
- The interest rate. Ensure that the interest rate you are offered is competitive for your financial situation and the vehicle you are purchasing.
- The loan term length. The shorter the loan, the less it will cost you in interest.
- Balloon payment. Some loans will require a larger sum payment at the end of the loan term. This is especially common with dealership lenders.
- Repayment frequency. Check to see how often you will need to make a payment and if you will be penalized for paying off the loan early.
- Fees or additional costs. Sometimes a loan with a higher interest rate with fewer hidden fees is more economical in the long run. Monthly account fees and establishment fees are common with truck loans.
- It is likely your lender will insist upon valid truck insurance during the life of the loan as additional protection for the truck as the security of the loan.