When running a successful startup, there will come a time to transition from using your personal car to investing in your very own business vehicle. While this is an exciting signal of your business growth, financing a commercial auto may require more capital than you have on hand. In this case, an auto loan can help.
If you’re looking to secure an auto loan, here is a handy guide to financing a commercial auto. We’ve discussed what a business auto loan is, how you can improve your chances of securing one, and tips for navigating the online auto loan process.
Let’s begin!
What Is A Business Auto Loan?
A business auto loan functions similarly to a consumer auto loan. You borrow money to loan a car or truck for commercial use, and the vehicle becomes collateral. This means that unlike other business loans, you will not need to sign an agreement stating that you’ll repay your debt with personal assets if your startup fails.
As the built-in collateral reduces the lender’s investment risk, these loans typically have lower interest rates than unsecured business loans.
Keep in mind that “business auto loan” is an umbrella term, with different loan types falling under it. Click here to learn about car leases vs hire purchase agreements, which are two popular auto loan types.
Tips On Securing The Best Business Auto Loan
If you intend to apply for business car finance soon, here are some simple tips on improving your buying potential and securing the best auto loan for your startup.
1. Limit Your Loan Shopping To Two Weeks
Each time you apply for a business loan (whether you get approved and use it or not), your business credit score drops, making it more challenging to secure the top loan package you require. One way around this is to limit your loan shopping to two weeks – if you make all your loan applications within two weeks, this counts as a single inquiry.
2. Watch Out For Conditional Financing
Make sure you never accept loans from a dealer until every aspect of the financing (downpayment, interest, length of loan, monthly installment amount) has been finalized. If the funding is described as “conditional” or “contingent,” the lender can change these terms later, and you might be forced to settle with a less advantageous agreement.
3. Understand (And Improve) Your Credit
The best interest rates advertised online (and elsewhere) often require you to have a good credit score. Your credit score is critical – it will help determine the interest rate your lender charges and whether you can even secure a loan at all. So the better your credit score, the more trust a lender will place in your business’s potential and your ability to responsibly manage money.
This is why it’s important to understand where your credit stands and try to improve it before applying for financing. Check that all your business bills are timely paid, and ensure the information on your credit reports is correct.
Also, always be upfront about your financial standing. Overestimating income, misrepresentation of employment, or underestimation of debt will result in your application being rejected, further impacting your credit score.
Why You Should Consider Online Shopping For A Car Loan
Shopping for a business auto loan online has many advantages. We’ve discussed some of the top benefits in more detail below.
1. Easy Comparison
When shopping for auto loans, it’s important to compare interest rates from various lenders. Interest rates can vary significantly from lender to lender, so it’s always helpful to shop around to secure the best possible deal.
Shopping online allows for easy comparison – instead of visiting banks or lenders physically, you can simply compare offers online, decide which one is best suited to your needs, and visit the lender to finalize your deal. This saves you great hassle, money, and time.
2. Convenience
The biggest advantage of an online auto loan comes down to convenience. You can sort through offers, explore different options for the make, model, and price of your ideal business car, and compare interest rates from other dealerships without having to leave the comfort of your home.
Plus, many online loan lenders or banks have helpful tools such as trade-in value estimators or payment calculators for your convenience. This is a great way to save time and money, so check for any lenders with an established online presence in your area. You might just find your perfect business vehicle at an interest rate that’s hard to beat.
Tips To Ensure A Safe Online Auto Loan Procedure
While online loan shopping is convenient for the reasons we’ve discussed above, there is a security risk you have to consider. Like in other parts of the online world, scam artists are always on the lookout for online loan shoppers to target.
Here are eight essential tips to ensure a safe online auto loan procedure:
- Always do your shopping on reputable websites with enhanced consumer protections.
- Never send money before meeting the lender/representative in person – a reputable lending company will have no problem arranging a physical meeting before finalizing the deal.
- Don’t go off of pictures of the vehicle you intend to buy. Make sure to inspect it in person and also arrange a mechanic inspection before making your first deposit.
- Always use secure and traceable payments, and ensure the site has secure transactions.
- Do not share personal/sensitive information such as your social security number, credit card information, or birthday.
- Try and keep your search within the local area. While shopping online can help you select a lender before making physical rounds, selecting one in your local region allows you to easily meet them in person.
Final Thoughts
Investing in a commercial vehicle is a big step you’ll be taking in your business journey. And like all other loans, securing a business auto loan requires you to conduct thorough research, carefully weigh your options, and understand the pros and cons of your investment.
Make sure your purchase does not negatively affect your business’s cash flow, and consult with your financial advisor about your decision before sealing the deal. In case you do end up messing up your cash flow, read our piece on how businesses are becoming creative in offering cash flow crunch solutions.
