Different types of business loans are used to secure funding for various aspects of running a company. One common type of loan is a commercial auto loan. It is similar to borrowing money to buy equipment specifically used for vehicles. If you plan to buy a truck, car, or any automobile for your business, it is essential to understand how commercial auto loans work and how to apply.
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How do commercial auto loans work?
A commercial vehicle loan is quite similar to its consumer counterpart. Whether you borrow money from a bank or use an online lending service, the vehicle you purchase becomes collateral. As such, signing additional paperwork promising to offset your unpaid debt with other business assets is unnecessary.
Moreover, unlike other unsecured loans, it is possible to pay lower interest rates because the built-in collateral reduces the lender’s risk. However, depending on the lender, the terms of repayment may vary. For example, some lenders require borrowers to give a down payment before financing the rest of the cost. Restrictions may also apply according to the vehicle’s age and accumulated mileage.
Since it is a business loan, the lender will still approve it based on your business credit score. The lender may even require a personal guarantee if you do not have a business credit rating.
What are the requirements to get a commercial auto loan?
The required documents are straightforward and relate to your business, such as business registration, license, incorporation documents, etc. In addition to proof that you own the company, you must also provide financial records such as tax returns. Lastly, a business plan detailing why you need to purchase a vehicle and how you intend to use the asset may also be necessary.
Applicants without an established credit history could be asked to provide personal details such as their social security number and income proof. That said, these requirements vary from one lender to another. It is best to inquire in detail so that you can prepare adequately before sending in your application.
Will you get approved even with bad credit?
Lending companies will have offers available for individuals with limited business credit or a bad personal credit history. However, you may not have as many options available. Also, interest rates and fees could be higher. If it is too risky on your part, it may be better to work on your credit rating first before considering applying for a commercial auto loan.
What happens if you cannot pay the loan anymore?
The vehicle automatically gets repossessed for loans without a guarantee due to non-payment. On the other hand, loans, where you submit a personal contract, could damage your credit history. While you could use other assets to pay the debt, the negative impact will still reflect your credit report.
Indeed, commercial auto loans are key to acquiring vital assets for business operations. But before applying for a vehicle loan, consider your company’s current financial standing and ensure you can repay on time.
