7 Basic Steps To Finance Your Truck
Written by Phillip Gruppelaar
You’ve decided to buy a new truck to replace your existing one. You usually sit down and determine exactly what you need in terms of equipment, which items come standard and which ones are options. The next step is to learn as much as possible about how to finance your vehicle. These tips will help you make the process easier and save you money.
Step 1: How Much Can You Afford?
You can determine your monthly payments ahead of time by using a payment calculator and setting up a monthly budget. Here is an example: Assume the truck and trailer cost of $200,000, a trade in valued at $60,000 and GST tax of 10%. Using a 60 month payment plan at 8%, your monthly payment will be $3,122.56. Now add your monthly insurance, registration, maintenance and cost of fuel. Subtract this from you monthly income and you will get thumb-nail of your potential profit. These numbers do not allow for slippage, unexpected delays or breakdowns.
Step 2: Know What Are Financiers Looking at?
Here are a few factors they will look into;
– How long have you been driving trucks? Long- term experience is in your favour.
– How much time is your truck on the road? What is your down time? This will determine your allowance for down time, repair and maintenance. With older trucks there is more down time and you must show that you can afford these down times.
– How much does your truck cost?
– Financiers are sizing up your past driving history, how long you’ve been in business, down time, and past profit. You will need to submit tax returns to substantiate this information.
– What else are you bringing to the table? Do you have long- term contracts? If so how much income do they generate? Are these contracts expected to continue into the future? Your financier is trying to determine your ability to repay the loan going forward.
– Do you have other collateral such as home equity or investments to fall back on? What is the value of this collateral?
Step 3: Decide on the Length of Your Loan
You can obtain 60- month loans or longer, however, you will be paying more in finance charges for these loans. For long- term loans,
your interest rate is the key factor. In the above example, if you can lower your interest rate to 6% from 8%, your monthly payment will be $2,977.25, a savings of $144.81 per month and a total for 60 months of $8.688.60
Step 4: Don’t Go Overboard with Options
Try to be reasonable when choosing options for your vehicle. You want as many comfort features as possible without stretching your pocketbook. Here is where you will need to do some extra homework. Trucks come with a package of standard equipment. Make a separate list for special items. Review it and make the hard choice to stick with absolute necessities.
Compare the cost of buying a higher quality vehicle. They have a higher trade in value and last longer.
Step 5: Do Not Overlook Your Other Fixed Costs
Be aware of any additional costs associated with your truck, including projected petrol, maintenance and insurance costs. You can view the cost of ownership for your new truck and see how it rates in its class before deciding to buy.
Some dealers offer a package deal of warranty and preventive maintenance that can be financed as part of your loan. When it comes to incentives, be sure to check if your dealer has a nationwide network of repair specialists and whether you will be given a similar vehicle in case of an extended breakdown.
Step 6: Get Several Estimates
Check multiple dealerships and truck finance broker such as www.harleyfinance.com.au to secure the best deal available on both the truck and the interest rate on the loan. Remember that if you are pre- approved with your finance broker, you become a cash buyer at the dealership. This is especially helpful when it comes to negotiating for your trade in.
Also check buyer incentives. Competition among dealers is fierce. Some offer special incentives to bring you into the showroom. Some may even offer you a holiday trip to get your business.
Take your time and review each detail of your contract. You may want to consult with your accountant or lawyer before signing.
Step 7: Know Your Credit Score
Your credit score is critical to securing your best deal. The higher the score, the easier it will be to obtain credit and the more leverage you will have in negotiating your interest rate. You can prepare beforehand by paying down as much debt as possible.
Try to use only one or possibly two credit cards and pay off balances each month.
A key number that credit agencies use is your debt to income ratio. Add up your monthly fixed expenses such as mortgage, car or truck loans and monthly credit card payments. This should not exceed more than 40% of your gross monthly income. This debt to income ratio is critical when negotiating your interest rate.