When it comes to expanding your business or starting one in the logistics, transport or passenger mobility sectors, a Commercial Vehicle Loan can be a smart financial tool. It helps you access the capital you need without disrupting the day-to-day cash flow of your business. However, like any other loan, a loan for commercial vehicles too comes with specific requirements and processes. Many individuals, especially the first-time applicants, often tend to overlook factors which can be extremely crucial in the application process. Read this blog to understand some common mistakes to avoid and ensure a smooth loan application journey.
Overlooking the Type of Vehicle Eligibility
One of the most common yet easily avoidable mistakes is not checking whether the vehicle you intend to purchase can be financed with a Commercial Vehicle Loan. Lenders typically offer loans for a wide range of commercial vehicle types, although each comes with its own set of eligibility requirements.
- Light Commercial Vehicles (LCVs): These include small trucks, pickup vans and mini delivery vehicles. They are commonly used for intra-city goods transport.
- Medium & Heavy Commercial Vehicles (MHCVs): These are larger vehicles like 10-ton trucks and tankers. They are often used for long-distance movements or industrial transport.
- Passenger Carriers: Vehicles such as school buses, minibuses and vans that transport people fall under this category.
- Goods Carriers: Trucks, tippers and similar vehicles which are used for transporting construction materials, perishable goods or machinery.
Failing to Prepare the Necessary Documents
Another common mistake that often delays or derails loan approval is incomplete documentation. Lenders require a specific set of documents that commonly include:
- Photo Identity and Address Proof: As per RBI defined KYC guidelines.
- Experience Proof: Driving license, registration copy of commercial vehicle owned, current account statement.
- Income Proof: Previous months’ bank statement, ITR/audited financials for the last few years etc.
- Fleet List: List of vehicles owned & supporting documents for the same (wherever applicable).
If you are a first-time applicant, it is aways ideal to double-check the documents that are required by your lender. It can help save time and expedite the loan approval process.
Misjudging Interest Factors
A very common parameter that first-time applicants often tend to overlook is the cost of borrowing. Interest rates vary depending on several factors which may include (but not limited to) the following:
- Creditworthiness: A good CIBIL score like 750 or above can help you secure lower interest rates.
- Business Vintage: The longer your business has been operational, the better your chances of getting a favorable rate.
- Vehicle Age: A Commercial Vehicle Loan for a new vehicle often has lower rates compared to used ones.
- Loan Amount & Tenure: Higher loan amount with shorter repayment terms might attract lower rates.
Not Verifying Loan Eligibility Criteria
Each lender has their own set of eligibility criteria. Consider the following minimum eligibility criteria laid down by most lenders for a Commercial Vehicle Loan in India.
- Age: Between 18 and 65 years at the time of loan maturity
- Citizenship: Indian
- Employment: Self-employed non-professionals
- Customer Profile: Individuals, Proprietorship, OPC, Partnership firms, LLP, Companies (Public & Private), HUF, Private Trust, Public Trust & Society
Also Read: How to Prepare Your Business for a Commercial Vehicle Loan Application
Avoiding Checking Repayment Capabilities
A Commercial Vehicle Loan is a long-term commitment which can impact your business finances. However, first-time applicants may make the common mistake of focusing only on the loan amount and interest rate without evaluating their actual repayment capacity. To avoid this, do the following:
- Calculate your monthly EMI using online tools.
- Ensure your business’s cash flow can comfortably accommodate the monthly instalment amount alongside other costs.
- Factor in insurance, maintenance and fuel costs that are associated with the operation of the vehicle.
- Lastly, do consider any seasonal fluctuations in your income.
Not Comparing Multiple Lenders
Lastly, never avoid researching and comparing multiple lenders. As a first-time applicant, it might be tempting to accept the first offer that comes your way. This can lead to missing out on better loan offers that could be ideal for your needs and requirements. When researching lenders, always consider the following factors:
- Interest rates, processing fees/any other charges.
- Prepayment or foreclosure fees.
- Flexibility in repayment options.
- Customer service review.
- Time span for approval and disbursal of the loan.
To Conclude
Applying for a Commercial Vehicle Loan is a significant step in scaling up your business operations. By avoiding mistakes like overlooking the type of vehicle eligibility, not preparing the necessary documents, misjudging interest rate factors, not verifying loan eligibility criteria, not looking at your repayment capabilities and not researching enough lenders, you will be able to position yourself in a much smoother financing experience.
Poonawalla Fincorp offers Commercial Vehicle Loan up to ₹1 crore with minimal documentation, flexible repayment tenure and attractive interest rate starting at 10%* p.a. Explore on the website and get going with a hassle-free loan application process.
Frequently Asked Questions
How can I ensure my vehicle qualifies for a Commercial Vehicle Loan?
Check the lender's eligibility criteria for the specific type of vehicle you intend to purchase. This information is usually available on the lender's website or through their customer service.
Why is it important to research multiple lenders before applying for a Commercial Vehicle Loan?
Researching multiple lenders helps you compare interest rates, processing fees, prepayment or foreclosure charges, loan tenure flexibility, customer service reviews, and approval and disbursement times to find the best deal for your needs.
How can I improve my chances of loan approval?
Ensure all required documents are complete and accurate, maintain a good credit score, have a stable business operation history, and choose a vehicle that meets the lender's eligibility criteria.
What documents are required for a Commercial Vehicle Loan application?
Commonly required documents include photo identity and address proof, experience proof (like a driving license and registration copy of a commercial vehicle), income proof (such as bank statements and ITR/audited financials), and a fleet list if applicable.