So you are looking to buy a truck?
Chances are if you are reading this you are thinking about financing it too and why wouldn’t you, it’s (typically) a big expense and there are so many financing options these days it wouldn’t make sense not to. But there are some key considerations before signing that finance contract and driving off into the sunset behind the wheel of your new truck.
Below are the top 5 things to consider before financing your next truck :
Life Expectancy of the Truck
So this one applies more to used vehicles than new ones and some people might think this one is a no brainier. But you’d be surprised how many times I’ve seen someone looking for the longest term possible on a truck without thinking about how many years use they can get out of it.
When getting a loan on a new rig think about how many years of life it’s got left, even more importantly think about not just how much work it’s done in the past but how much it will do with you : Will you be putting a few hundred thousand km’s on the clock? If it’s a rigid will you be giving the body a hard time?
No one wants to be paying loan repayments for a truck that’s a too long in the tooth to do the work you need. Be realistic about usable life, weigh up all the factors then get a loan term to match.
Finance Repayments Affect on Cash Flow
If cash is king then cash flow is definitely the heir apparent.
When looking around for a new truck and finance options it’s critical to be aware of your businesses cash flow. And be aware of it in great detail.
If your finance contract is structured monthly but you only work 10 months of the year the lender is still going to want their payments. This will not only put cash flow strain on those 2 months you take off work but also pull cash out of the surrounding months, so plan for it. There are also some lenders that will do structured finance contracts but you need to request this pre-settlement.
Other cash flow considerations include higher insurance costs, tyres, tolls, additional wages for someone to drive the truck, servicing and much more. Don’t get caught out, nail your cash flows before getting into your new finance contract.
End of Term Values
This kind of goes hand in hand with the otabove 2 points, to reduce the impact on cash flow a finance commitment can have often truck owners will have a balloon or residual. This can be a great idea but has one big exception: What if the truck isn’t worth what the end of term payments is?
If this is the case the decision to have a residual amount to assist cash flow has back fired and has the opposite affect because you end up having to come up with the difference. This can be 10%,20% or even 40% of the original purchase price. Not a small chunk of change.
This is why it’s important to be realistic when setting finance contract residual values, no one has a crystal ball but it’s always best to match the final payment to the expected value of the truck. When trying to estimate the value think about
- Who will be driving it – Will it be you or will it be an employee who may not care about the condition of the truck as much as you do?
- Where will they be driving it to – Is all of your work local or does the truck do lots of km’s going interstate?
- Is this model being replaced sooner with a newer, better model? – Ask the salesman this one, they love that question.
Room to Move
You’re a good truck operator and you know it. But what if someone else figures that out too and they want you to do more and more work for them?
You need to make sure you are in a position to take advantage of the additional work right? So as well as planning for the negative stuff like repairs and down time plan for the good stuff too like growing your business. Before committing to that new truck and finance contract make sure you can expand when you need to rather than being stuck waiting till you can sell it to buy another one that’s more suitable.
- what if in 2 years time you need to pull a trailer behind your tipper OR
- What if the 12 pallet tautliner you bought really needs to be 22 pallets next year?
Bottom line is consider the positive as well as the negative when looking at your next truck
Wants Vs Needs
This one goes for the truck purchase, the finance contract and just business in general. It is very important to make sure your wants don’t out weigh your business needs.
You spend a lot of time in your truck and you definitely need a sleeper cab but do you really need the extra high custom sleeper or do you just want it?
Everyone wants the newest model but would your business be just as efficient and earn just as much money with a slightly older model?
These same things can be applied to your finance contract: You might want a big residual or the 7 year term or that super low, almost home loan rate you saw advertised online but these wants are standing in the way of you getting the truck you need is it helping your business or hurting it.
Make sure when making the decision to purchase a truck you put your business interests 1st.
The bottom line is you run a business and you need a truck to do it. The finance options out there today are designed to assist you in buying your truck but also growing your business. Your lender or broker of choice will generally work with you to achieve this outcome. So if you do the right research and projections you are on to a winner.
Need more info? Learn more about truck loans here