Commercial vehicle financing
Commercial Vehicle Finance is a form of secured loan where any vehicle used for commercial purpose is financed by a Finance Company.There are different ways in which the finance can be taken like Normal Secured Loan, Equity Loans and Lines of Credit, Leasing etc.ANormal secured loan is the cheapest form of credit available, though it comes with its inherent risk of repossession.Equity Loans and Lines of Credit also provide a source of cheap finance but this too comes with the risk of repossession.Leasing is an option that, though is more expensive than the first two options, has a tax benefit component attached to it. It is like renting out your vehicle for a certain period of time at the end of which the lessee has the option to turn the monthly payments into a part of the price of the vehicle which can be bought by canceling the difference.
Another option to finance a commercial vehicle is to take an unsecured loan. Though is comes at a higher price, the risk of repossession is eliminated.As in any other loan, interest rates for commercial vehicle finance can be either fixed or variable. Fixed rates are rates that remain the same over the entire tenure of the loan, while the variable rate keeps changing with the market. During a low interest rate regime the variable rate can provide a cheaper finance whereas if the interest rate goes up during the tenor of the loan, it can prove to be more expensive.In India financing of commercial vehicles is only in the form of secured loan with a fixed rate of interest.Almost all the banks and Non Banking Finance Companies are now in the business of Commercial Vehicle Financing with Tata Motors Finance being the market leader.
Other financiers include HDFC Bank, ICICI Bank, The Citi Group, GE, to name a few.The fleet owners are generally divided into 3-4 categories depending on the number of vehicles owned by the customer ? a) First Time Users (FTUs) or zero vehicle owners, b) Small Road Transport Operators (SRTOs) having about 2-10 vehicles, c) Medium Fleet Operator (MFO) having about 11-50 vehicles and d) Large Fleet Operators (LFOs) having more than 50 vehicles.The vehicles are also divided into 2 parts depending on their tonnage ? a) LCVs or Light Commercial vehicles and b) Heavy Commercial Vehicles or HCVs. A subpart of the LCV segment is the MUVs or the multi utility vehicles.Financing a commercial vehicle involves a lot of technicalities also ? the kind of vehicle to be financed, the route on which the vehicle will be plying, the fleet operating experience of the customer, the fleet size of the customer and so on. 90-100% of the cost of the vehicle is financed for the customers falling in the third and fourth category while it maybe up to 90% for other customers.
A good credit score is however the key to get a higher finance amount and a lower rate of interest. Existing relationship with the financier also goes a long way. Customers can also avail finance by mortgaging their existing vehicles, whereby they get liquid cash, and also enjoy the low rate of interest of a secured loan. They also have the option of buying second hand vehicles on finance.A lot of financiers have also tied up with petroleum companies whereby they are financing co-branded fleet cards enabling the transporters to buy fuel whenever required and repay the same at their convenience. The banks are also offering cash credit facilities to big transporter under the commercial vehicle finance scheme keeping vehicles as mortgage.Thus, commercial vehicle finance as it stands today not only funds for a vehicle but caters to entire range of financial needs of a transporter, though the level and terms of services may differ to a certain extent depending on the financier.
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