The ins and outs of financing your work vehicle
If you are planning on financing your work vehicle, either a truck or van, shopping for loans is as critical to saving money as shopping for deals.
Full-size truck sticker prices start at around $28,000, but the average price paid is closer to $40,000, according to Kelly Blue Book. Few small businesses can afford to pay cash for such expensive vehicles. Following the steps below in their given order, however, will help you secure the best financing deal for your next commercial vehicle.
1. Research your credit score.
Before you begin shopping options for financing your work vehicle — and especially before you sit down with a dealer’s finance manager — you need to get a sense of your credit score.
Consumers do not have access to the credit scores used by lenders. Finance managers at car dealerships often use a FICO Auto Score, which is among nearly 50 consumer credit scores issued by FICO.
Still, the credit scores available to consumers provide a good indication of how lenders will rate your creditworthiness and are widely available for free. In August 2018, the big three credit reporting agencies — Equifax, Experian and TransUnion — were all giving away consumer FICO scores to entice consumers to sign up for free trials of their credit monitoring and protection plans. In addition, many credit card companies, as well as sites like LendingTree.com and CreditSesame.com, were providing credit scores to their registered users for free.
2. Check manufacturers’ incentives.
With a credit score in hand, you can better evaluate what incentives dealers and manufacturers are offering. Typically, these include no- or low-interest loans, cash rebates and lease deals. Kelly Blue Book reports that in 2017, such incentives averaged 10.4 percent of the manufacturer’s suggested retail price.
When financing your work vehicle, mid to late summer is an especially good time to check on incentives because that’s when manufacturers and dealers promote “summer clearance” events aimed at clearing dealer lots to make way for deliveries of the next year’s models. In early August 2018, manufacturers were offering rebates of zero to $7,500 and financing rates as low as zero to 3.9 percent on select 2018 pickup truck models, according to Edmunds.com. Qualifying for zero percent financing generally requires a consumer FICO score above 700.
3. Secure a pre-approved loan.
Don’t set foot on a dealer’s lot until you secure a loan offer from a bank, credit union or other stand-alone lender. Try to get at least two offers, including one from the bank handling your business checking account. You can use online loan sites like Bankrate.com or LendingTree.com to scan interest rates and solicit bids from multiple lenders. In early August 2018, Bankrate.com reported the average interest rate paid on a 36-month new car loan was 5.38 percent, but a search online found a federal credit union offering such loans starting at 2.74 percent and a national bank offering them starting at 3.49 percent. If your credit record is spotty, your lender may require you to buy credit insurance. Make sure you get lenders to break out the cost of credit insurance before you go to the dealership, so you have a basis for comparison.
4. Go for the shortest loan term you can afford.
While securing a manageable monthly payment is key, remember that the least expensive loan is usually the one with the shortest term and therefore the highest monthly payments.
Use one of the many free car loan calculators online to compare the costs of financing your work vehicle over 36, 48 and 60 months. This will give you a sense of which term works best for you. For example, if you finance $25,000 over 36 months at 4.83 percent, your monthly payments would be $747.37 per month and your interest payments over the life of the loan would total $1,905.17. If you went with a 60-month loan at 5.38 percent you could lower your monthly payment to $476.15, but total interest payments on the loan would rise to $3,568.73.
5. Negotiate the price, not the payment.
When you do finally visit a dealership, steer the conversation away from monthly payments and financing and get the salesman to focus on price, including any desired options. Once you reach an agreement on price, your next stop will be the finance manager’s office. When the conversation turns to financing, share your credit score and ask the finance manager if he or she can beat the terms of your standing loan offer. This will help both parties determine whether it’s worth pulling a credit report, which costs the dealer money and could lower your credit score.