Buying Your First Truck
A success guide... 

Finance Your Truck
Now that we’ve covered the initial processes of getting into your truck we’ll tackle the fickle finger of finance.

To many, finance is a mystery. All the cloak and dagger activities of underwriters who pore over your finance records, credit bureau, and bank information seem intimidating and sometimes downright scary to prospective buyers. This segment will hopefully serve to “demystify” the whole truck finance process and give you some solid tips and pointers to make your goal of truck ownership a reality.

There are four main points that truck finance companies consider in their approval or (gulp) disapproval of your application. They are as follows:

• Your haul source. This is the company where you will be working the truck that you get. It may be an owner/operator carrier fleet or it might be a collection of hauling sources that have contracted you to haul for them. The more stable and legitimate the haul source the better your odds of getting the financing you need. Going to work for “Bubba’s Trucking & Hair Studio” isn’t going to buy you any credibility with the lenders. However a major fleet that is recognized in the industry WILL. The key is to be picky about the company. Also it is a very good idea to go ahead and contact these companies before you apply for financing. Get the recruiter’s name and number and ask him or her to furnish you with a letter of intent. This letter needs to be on company letterhead and basically needs to indicate that they intend to hire you (and your truck) upon getting funding for your loan. This letter may indicate that you have to make it through orientation prior to them hiring you and that is perfectly fine for the lender’s purposes. You’ll want to include this letter (or letters) of intent with your credit application when it is submitted to the lenders for approval. It will drastically improve your chances of getting approved for your loan.
• Your initial investment. This is crucial to your being approved. The lenders want you to be just as committed as they are to the success of your venture. This means that they want you to commit to such an extent that you don’t just walk away from the truck if things don’t go perfectly. For most first time buyers this means between 15% to 20% of the total price of the truck. The more you put down the higher your chance of getting an approval. Also the more you invest the lower your rate of interest. I had a client one time with TERRIBLE credit. It was one of the worst bureaus I’d ever seen in my career. However he wanted the truck and wasn’t about to be denied. I was ready to throw in the towel when he asked me “What do they need to have down to do this loan?” I asked the lender. They told me 50% down and he’s approved. I was pessimistic to say the least. I gave my client the figure and to my shock and dismay he brought the money to my office the next day. He was an owner and went on to be successful in his trucking venture.
• Your experience. If you just got your CDL yesterday you don’t stand much of a chance of getting a truck loan just yet. You need to get some experience by working as a driver for a legitimate fleet. Many lenders require two years of experience as a CDL driver before they’ll consider you. Some are a little more forgiving. Also your insurance costs will be much lower if you have experience versus being a “newbie”. You’ll want to list as much driving experience as you can on your application.
• Your credit. Okay this is the one everyone knows about. What you may not know is that you can be weak on any one of these four criteria and strong on the rest and STILL get your loan! Your credit is based upon several factors including your pay history, your loan amounts, the amount of “lines” on your bureau, and your overall stability. Stability is based upon your job habits i.e. how many jobs have you held in the past two years? Stability is also based upon whether you are a homeowner or renter. It is also based upon how long you’ve been in the same locale. If you have open tax liens or child support in arrears on your bureau then you are almost assured that you won’t get a loan for a truck. That being stated, I have lenders who handle scores as low as in the 500’s so don’t count yourself out if you have a lower score than the norm. You never know when your other points like down payment, experience, and haul source will help raise your probability in getting a loan.

As stated previously in this guide, a well-written business plan can make a huge difference. I recommend that you submit your typewritten business plan along with your application and letters of intent when applying for a truck loan.

Many people think they only need to put their name, social security number, and address down on the application and that is sufficient for a loan officer’s approval. WRONG! Don’t skimp here folks. The more information you provide the lender the more likely they are to approve your loan. If you want to explain something derogatory on your bureau then use a separate sheet of paper and type out an explanation letter for that particular item on your credit. They are going to look at your bureau anyway so make sure any problems have a good explanation. Also don’t fib on your application. They may find out you did and it won’t reflect well on you in their decision. You also run the risk of committing fraud in your application. Most of the time this isn’t an issue but here is an extreme example: Suppose you get the loan and several years into the loan you (heaven forbid) decide to file bankruptcy. If the lender can prove that you lied on your application you might still be responsible to pay that debt and filing bankruptcy won’t help you.

Okay we’ve covered a lot of ground so far. Now we’re going to handle the four-letter word of finance:

RATE

This is probably the most misunderstood term in finance. Rate is the cost of the loan presented as an annual cost ratio or percentage of the loan. The letters APR (Annual Percentage Rate) are probably very familiar to you as most any car commercial carries that in its fine print / fast speak disclosure. APR is the entire cost of the loan for any one year presented as a percentage against the financed amount. Most states require that APR be disclosed prior to a loan being written.

Here is the most common issue/objection I run into: “The rate is too high!” Oh if I had a dollar for every time I heard that! Rate is determined by the risk of a loan. Here are some standard consumer’s rates that are prevalent as of this writing:

• Home Loans: 5.5% to 7.50%
• New Car Loans: 4.0% to 8.00%
• Used Car Loans: 7.5% to 30.0%

Obviously the higher your credit score the lower the rate. Note that a home loan is much lower in rate range than car loans. Why is that? It is because a home is typically a safe investment. Homes APPRECIATE in value most of the time. That means that if at some point in the loan a buyer defaults the bank has a reasonably good chance of recouping all of the money owed on that asset. Cars on the other hand DEPRECIATE in value over time. New car loans are usually low because the manufacturer subsidizes them most of the time. It is in the interest of the carmaker to sell more cars. They promote low interest rates that are basically reinterpretations of rebates. Instead of a rebate they’ll give you a low APR. Sometimes they’ll give you a choice of either one. Used car loans don’t have that luxury and therefore carry higher rates than these other two categories. Again credit determines risk and risk determines rate, which is why there is such a wide range on used car loan rates.

Do you know the riskiest investment in America today? Venture capital. Venture capital is money borrowed by individuals or corporations to finance a business startup. Now for the statistics:
9 out of 10 new businesses fail in the United States.

Okay class, here’s my question: Is a truck loan venture capital? You BET it is! Not only is it venture capital but it is venture capital applied to a DEPRECIATING asset! Talk about a double whammy. Would you say that a truck loan is risky? You BET it is! Would you expect that risk to equate to a higher interest rate than say your home loan? If you said “Yes!” you win a gold star and extra recess.
Truck interest rates vary depending on the equipment purchased and the credit profile of the borrower based upon the areas discussed above. Here is the range:

• New Truck Loans: 9.0% to 20%
• Used Truck Loans: 11.0% to 40%

Now before you have a heart attack please realize that those who have very poor credit pay the higher rates. If your credit is fair or good then you are going to be on the lower end of that range. Again, the preparatory work you perform prior to loan submission is critical to getting as good a rate as possible.

So you apply for a loan and your rate comes back a little higher than you’d like to pay. Do you just take it on the chin and deal with it? Before you answer that question read the following:

Normally there is some markup on rate by a dealership. This ranges from 1% to 3% on average. If you accept the loan as called then the dealership holds that difference between the “buy rate” (their cost) and the “sell rate” (your APR) as profit. Have you ever wondered why car dealerships have finance managers on site? Its because they make a LOT of money for their dealerships. Many times the finance department makes more profit for the dealership than the actual sales department. I’m not kidding! I recommend that you ALWAYS try to negotiate the rate of interest. If there is room to accommodate you then the dealership will give you a break on the rate in order to get your business on the actual truck. If there isn’t then they’ll let you walk. Another thing you can do is offer a “buy down” of the rate. What this does is offer additional down payment in return for a lower APR. This is standard operating practice in the field of finance so don’t be bashful about asking for that. This little bit of advice alone can save you literally thousands of dollars on your next truck (or car) purchase.

One other possibility that you can explore to get an outstanding rate:

Credit Unions! I’ve seen some unbelievable things from credit unions. I’ve sent MARGINAL clients with regard to credit out to a credit union only to have them show back up with a check in their hands at a remarkably low interest rate. These unions love to lend money to their members. To join you usually have to open a checking and savings account and deposit the minimum amounts ($25.00 per account is the norm) and you are “in the club”. You can then immediately turn around and apply for a loan on a home, car, or BIG RIG! I would strongly advise you to exhaust that option before taking the higher commercial rates of interest. You might just laugh all the way to the…credit union!

I hope you’ve enjoyed reading this as much as I’ve enjoyed writing it. My next installment of this guide will deal with your choice of trucks, dealers, and warranty and why that can mean success or failure for you in the wonderful world of trucking. If I can help you with your next truck purchase I’d sure appreciate the opportunity.

– Doug Shields

-Doug Shields is actively engaged in heavy equipment consulting in the Southwestern U.S. He has extensive experience in the transportation industry with over ten years in the business. If you would like more information on trucks then feel free to call Doug at 480-238-3873 or 800-273-8309. Doug also welcomes your comments and critiques. Please email them to dougshields1@cox.net