The coronavirus epidemic has left many business struggling while some have experienced unprecedented increases in workload due to demand for certain goods and services at this time. Some sectors of the transport industry have been flat out distributing goods to restock supermarket shelves while others are facing desperate times with their customers effectively shut down.
COVID-19 is having a massive impact on the economy and all businesses are looking for ways to improve or stabilise their financial situation so they come out the other side in a viable position.
One of the few encouraging elements is that prior to the crisis, truck loan interest rates were already heading down and have continued that trend, pushed along with the RBA’s monetary policy decision to further cut rates.
The historic low rates are without doubt, the driving force for many truck owners to consider refinancing their truck loan to ease pressure on their cash flow. With many truck finance loans extending over a 7 year loan term, you may have established your loan based on a much higher interest rate than the current rate. If you are part way through the loan term, refinancing may represent a way out of the current crisis.
But before rushing to apply, there are a number of factors to consider and we’ve outlined some of the pros and cons for you to work through against your individual circumstances.
Refinancing Unpacked
- Refinancing involves setting up a new truck loan for the balance owing on your existing loan.
- The new loan may be established by your existing lender or a new lender.
- The new lender pays out your existing loan and takes on your new loan.
- The new loan will be with a new fixed repayment amount, a new loan term and a revised residual/payout/buyback.
- Refinancing may allow you to combine several truck loans which had been established at different times over the past few years into the one loan package with one repayment rather than several to streamline your accounts payable.
- Your Jade Truck Loans consultant handles the loan issues including the paperwork on your behalf as with all loans
Business objectives and finance types
In addition to the low interest rates, another key factor in refinancing is due to changes in business structure or objectives.
- The range of commercial finance products: Chattel Mortgage, Truck Leasing, CHP and Rent to Own, each feature varying benefits to be derived in regard to GST, tax deductibility, depreciation etc.
- In establishing your existing truck loan, your accountant would have advised you as to which loan type was best suited to your business structure at that time. But over time, business objectives and structures can change. Your current finance facility may no longer be the best option for your business today.
- Refinancing would allow you to change your truck loan product. Eg if you currently have Rent to Own you may want to change to a Chattel Mortgage. If you have a Truck CHP, Truck Leasing may be more beneficial.
You should always discuss this with your accountant as they are best-placed to provide expert advice regarding your specific circumstances.
Your Payment History and Income
- Lenders will surely assess your payment history. Using a truck finance calculator can help you evaluate your payment schedule, but if you've consistently been late with payments, refinancing might not be beneficial for you.
- Your turnover/income will be closely studied by lenders, especially in the current coronavirus environment.
- If your income has been seriously affected, you will need to show how you see it improving when the peak of the crisis has passed.
- If you’re one of the fortunate businesses that has seen an upsurge in income due to coronavirus, ie possibly new contracts, lenders will want to know how sustainable this will be over the longer term.
- Refinancing on the basis of short-term contracts may not be the best idea.
- If you have taken advantage of the current situation to request a 6 month deferral of repayments on your existing truck loan, this may not be viewed favourably by a lender in offering refinance.
The value of your truck will also be taken into consideration.
What you can achieve
If you’ve tick all the right boxes and considered all factors and would like to proceed with refinancing your truck loan, the options include:-
- Taking advantage of low interest rates to reduce your monthly repayment while retaining the same loan term.
- Maintaining the same monthly repayment and reducing the loan term to repay the loan earlier.
- Using an increase in trade to increase your monthly repayments and pay off the loan earlier.
- Leave monthly repayments as they are now but reduce the residual/buyback/balloon amount due at the end of the loan term.
If you would like to discuss truck loan refinancing, please contact a Jade consultant for a confidential conversation. Call 1300 000 003
