First, there are the captive finance companies. Think of them as the financing arms of all the major manufacturers. They exist solely to provide financing to the public to sell their trucks. In the past, they have been somewhat liberal in their underwriting criteria and, like the mortgage industry, perhaps too liberal. This relaxed underwriting of the past has caused serious defaults today. This has resulted in a subsequent tightening of credit. The result is the selling of fewer trucks and trailers; customers have a harder time getting financing. Nonetheless, the captive financing company will always be part of the commercial truck financing game.
Second are the independent financing companies. They are not tied to the manufacturer in any way. They exist to make a profit from financing commercial trucks and other equipment. They can be a welcome alternative for several reasons. First, they can be someone to turn to if a good credit customer is “tapped out” with the captives. This means they have already financed trucks with the captive financing companies, and they don’t want to do any more for the customer (at least for now).
These “A” credit sources are competitive on rate with the captives and, using different independent sources; a customer can finance an unlimited number of trucks. Independents are great for other reasons too. Say a customer wants a TRAC lease with different parameters than what the captives are offering. They can search for an independent that can tailor a TRAC lease for that customer. This is invaluable for the more sophisticated customer that has tax structure as their main objective. Here’s another one, we have customers calling us all the time that may only work nine months out of the year. They need financing that can offer skip payments.
This way, the customer can make nine payments a year instead of twelve; taking three months off making their payments—one last one that hits home with us, the customer with bad credit. A captive financing company generally works only with people with good credit. For the customer with bad credit, their choices are limited. Thanks to independent financing companies (like ours) that specialize in customer with bad credit; these customers can get the financing they need to start or grow their business. Think of independent financing companies as offering financing products that can accommodate almost any need. There also providers that can help expedite payment so you can make payments on time.
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The third financing arm for commercial truck financing is the in-house financing program. Usually offered by the smaller vendor, in-house financing offers benefits for both dealer and customer. By offering to finance in-house, the dealer can move more inventory than if he didn’t. This is important because a smaller dealer doesn’t always have a captive finance program.
And with credit tightening up the independent financing companies are becoming less important. The dealer can act as an independent financing company by offering all the same products while keeping the benefits of earning interest on the trucks they sell. Of course, the bad side is they also suffer in the case of defaults where the customer stops making payments. The customer’s benefits are they have a one-stop-shop where they can finance a truck at the same place they are purchasing it from. The downside is they are limited to their inventory.