It is quite common to obtain commercial finance for buying a truck or any type of commercial vehicle. Since not always you have fund available with yourself to buy a commercial vehicle, it becomes essential to avail loans for making the purchase of commercial vehicles. However, in case of truck finance, there is a wide range of commercial loans or funding types that are popular in the market. Getting an idea about all types will essentially offer you better understanding of which loan or finance type to apply for purchasing a truck.
Commercial Hire Finance
In this type of finance, the lender of the finance buys the truck on your behalf and immediately leases it to you against a contractual agreement of payment per month. The total payment process includes of initial 10% deposit money followed by monthly payment of the portion of capital payment of the truck, interest, as well as rental fee. You can usually pay on a per month basis, or sometimes some financers allow you to pay the final amount in a bulk, instead of per month, which is called as balloon payment. However, the per month interest calculation is not deducted. Once all amount is paid, it clears the ownership of the truck, which is then transferred to you.
- The repayment amounts are not taxable.
- You can choose to pay a fixed rate Hire Purchase, which keeps your monthly payable amount same even if interest rate changes.
- You can claim capital allowance.
In this type of finance, monthly repayment amounts are decided in a way to cover up the entire buying cost of the truck, as well as interest. However, you are never given the ownership. You act only as the leasing company’s agent at the end of the repayment term and you can even sell the truck and keep 95% of the deal. You may as well extend the lease to run the vehicle against a small payment of rent.
Somewhat like the hire purchase financing, this type essentially does not include the entire value of the truck when the repayments are calculated for per month. However, the repayments are decided as per the depreciating value of the truck over the contract period. The residual value of the truck is set at first, and accordingly the repayment is constructed. Thus, you don’t need to pay the full value of the truck. At the end of the term, you may either pay off the balloon amount or get ownership of the truck or you can return the truck to the supplier without paying the additional penalty in balloon payment.
- You can judge your action in accordance with the market residual value of the truck at the end of the term.
- If your truck value, as per market seems to be higher than the balloon amount, you can pay or give it back to the supplier.
Operating Lease Finance
You never get the ownership of the truck in this finance type. The lender takes up repayment of the truck value in accordance with the depreciating value throughout the tenure of the repayment, which is again shorter as compared to the finance lease. At the end of the term, the lender sells the truck to retrieve the real value of the truck.
While seeking for truck finance, it is therefore beneficial to look for finance options where you get to pay as per the depreciating value of the truck with every year. Keep in mind the residual value of the truck at the end of the finance repayment tenure. Moreover, you can also seek for finance schemes with better tax benefits.