If you want to get started with a trucking business, you’ll likely need to finance a semi-truck or trailer to start. But before you do this, it’s important to understand how the financing process works, and how to get the best possible deal.

What Is Semi-Truck Financing?

Semi-trucks can be expensive. Financing is a convenient way to help would-be truck owners afford them.

Generally, financing can refer to both loans and leases. In a loan, you’ll typically put forth a down payment, then borrow the rest of the money you need to purchase (and then own) the vehicle. For example, if you’re buying a semi-truck for $150,000, you might put down $50,000 and borrow $100,000. Then, you’ll pay back that loan in monthly installments, chipping away at the principal while also paying interest.

In a lease, you won’t actually own the vehicle. You’ll be using the vehicle, but its ownership will be retained by the current owner. In exchange, you’ll make fixed monthly payments to retain those privileges.

Buying is advantageous in several ways. It gives you more control and more flexibility, since you’ll be the owner of the vehicle. However, leasing allows you to avoid taking on debt. It also lets someone else take charge of ongoing repairs and maintenance.

Estimating Your Monthly Payment

Before you finance a semi-truck, you should estimate the monthly payments you’re going to face. The lease agreement will outline the costs straightforwardly.

If you take out a loan, you’ll need to consider:

• Each month, you’ll be responsible for paying off a portion of the principal—the amount you borrowed.
• You’ll also pay interest each month. Generally, this is based on an annual percentage rate, which may be compounded at a faster rate (such as quarterly).
• Other fees. You may be required to pay other fees as well. For example, you may pay a loan-related fee to your lender, or you may have your insurance premiums tied into your loan.

Dealerships vs. Banks

You’ll likely have the option to finance your semi-truck through a dealership, or through a bank (or other financial institution). Generally speaking, financing through a dealer is more streamlined. You can get approved faster and get financing more conveniently. However, you may be able to get a better interest rate or other perks by getting financing through a bank. Either option may work in your favor; it’s important to do your research and choose the best path for you.

Getting the Best Interest Rate

Your interest rate will make a huge difference in the financial impact of your purchase. The lower your interest rate, the lower your monthly payments will be, and the less money you’ll pay for your vehicle in total.

You can lower your interest rate in a few different ways.

• Shop around. Make sure you look for financing options with a number of different institutions. You may be able to find a better deal just by shopping around.
• Improve your credit score. The better your credit score is, and the better your payment history is, the lower your interest rate will likely be. Improving your credit score can work in your favor.
• Depending on the circumstances, you may be able to negotiate to get a better interest rate.

The Down Payment

Most lenders will require you to issue a down payment before you’re formally approved for the loan. Depending on the lender and how much you’re borrowing, this is usually something like 10-25 percent of the purchase price of the vehicle. Make sure you’re in a position to save this amount before proceeding with a purchase.

The Financing Process

The financing process usually unfolds over a series of steps.

• You’ll usually need to fill out a credit application to apply for financing. A salesperson will likely collect information for you. You may also be required to submit paperwork, such as bank statements or tax returns from the past few years. You may also need to submit a letter from your employer, or a statement of business activities. Requirements vary by institution.
• Pre-approval. Before you purchase, you may get pre-approved; this isn’t full approval, but it can make the approval process much faster and more streamlined. Pre-approval is not especially common in truck financing, since approval rates are high.
• As long as you’ve submitted the right paperwork and everything checks out, you can get approved in as little as 24-48 hours.

Other Stipulations

Your financing provider may have other stipulations for you to consider. For example, you may be required to carry certain types of insurance, or you may not be allowed to pay off the loan early without penalty. Make sure you read the terms thoroughly to fully understand the pros and cons of this financing agreement.