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Commercial Fleet Vehicle Loans for Small Businesses

Whether you’re buying or leasing automobiles for your company, there are important steps you should take.

Loan Advice June 8, 2017

 

Investing in a commercial fleet for your small business is a lot like buying your first car. If you choose not to lease the fleet (and maybe you should if the dealer will throw in perks like prepaid maintenance and a generous billing plan), then the cost to buy will likely be substantial. For those using a loan to finance it, here are some important things to consider.

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1.) Boost Your Business Credit Score

When you apply for funding, one of the first things the lender will look at is your business credit score. If it’s too low, the lender may decline you outright. The higher you get it, the more likely it will be that you get a great rate. For these reasons, it makes sense to boost your business credit score before you apply for funding.

Here are some tips on how to build up your business credit score.

 

2.) Independently Determine Your Business Credit Score

When you rely on a lender to tell you your credit score, you put the person who’s deciding how much interest to charge you in charge of the biggest factor for how high the interest will be. It’s better to get the data independently. Then you’ll have more power to negotiate the interest rate with the lender.

Remember this – many businesses assume their credit score is lower than it is. When you see the numbers for yourself, you might have greater confidence to go after a better interest rate.

 

3.) Haggle and Figure Out How Much You Need

You wouldn’t pay sticker price if you were car shopping for yourself, so be ready to haggle for your fleet, too.

Before the negotiation begins, it helps to have a number already in mind. Do some research and figure out what invoice price is for each car. When you buy a fleet, you should be saving about 10 percent under invoice on each car. To save time, just give that number to the dealer from the start.

 

4.) Decide Between Direct Lending and Dealership Financing

Direct lending is when you work with a loan provider one-on-one, whether that lender is a bank, credit union, or another type of financing company. By using this kind of credit, you can compare rates as you shop around for a loan.

Another way to get a vehicle fleet loan is through dealership financing. Here, you and the dealer hammer out the loan agreement. The dealer then might sell the loan to a bank, credit union, or finance company.

There are two possible benefits of using dealership financing. First, it’s convenient. Then, the dealership may offer you a special rate that’s lower than what you would have been able to get by dealing with the lender directly.

Shop around. When deciding between these two financing options, it helps to know the rates. You should also consider if it is better to take advantage of cash rebates rather than a lower interest rate, as sometimes the dealership will make you choose between the two.

Even if you’re sure you’ll use dealership financing, it helps to show up with another financing option in hand, as this will give you solid footing during negotiations. The dealer may feel pressure to beat the rate you already have.

 

5.) Don’t Let the Dealer Focus on Monthly Payments

Car dealers are sneaky, and they’ll try to hone in on the monthly payment of your fleet. A relatively small monthly payment is a bad deal if the loan term is too long. It might be better to pay more each month for a shorter loan term.

Always keep your eyes fixed on the overall cost. If the dealer tries to shift the discussion to monthly payments (by asking a question like “How much can you afford each month?”), then be ready to bring the focus back to the total cost of the fleet.

 

6.) Look Out for Unnecessary Add-Ons

Something like 40 percent of the profits earned by car dealerships come from aftermarket add-ons. Think: paint sealant. If you’re purchasing a fleet, you shouldn’t have to deal with these kinds of charges. Seek out necessary add-ons outside of the dealership where they will likely be cheaper.

To be sure the dealer didn’t sneak any extra charges into your bill, you’ll need to comb through the paperwork. Examine every charge. If you’re unsure about part of the bill, then don’t sign until you understand it.

 

7.) Study Federal and State Laws

There’s legislation designed to protect you when purchasing a vehicle. One example is the Truth in Lending Act, which says that your creditor must disclose the APR of your loan, payment due dates, and late payment charges. The more knowledgeable you are about these rules, the harder it will be for a wheedling dealer to take advantage of you.

 

What You Should Know About Fleet Shopping

All the tips we just shared pertain to the loan, but you should also be aware of some fleet-specific tips that can make the shopping process go more smoothly:

  • You might be tempted to purchase the least expensive fleet, but that decision can come back to bite you. It’s smarter to spend a little more and get the right car for the job. Consider what you’ll be using the vehicles for, and make sure they can get the job done.
  • Try to get the dealer fee waived. Most of the time the dealership will waive the dealer fee when selling a fleet. You might need to ask, though.
  • You will be privy to better pricing if you get a fleet identification number. You can discuss this option with your dealer’s fleet vehicle manager.

Convenience comes from a dealership with a dedicated fleet department. But, you might end up paying for it. That’s why you shouldn’t discriminate as you shop around. Make sure you get all bids in writing.

As the rubber hits the road and you get closer to the finish line, we hope these tips will help you navigate through the complex world of fleet vehicle financing.

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