When planning to expand or optimize business operations, adding a commercial vehicle can be a smart investment. Whether it is for logistics, transportation, or service delivery, a commercial vehicle can enhance efficiency and support business growth. However, purchasing a vehicle upfront can strain your finances. This is where a Commercial Vehicle Loan can be invaluable. In this blog, we delve into essential preparatory tips for a Commercial Vehicle Loan application as a business. Read on to learn more!
What is a Commercial Vehicle Loan?
A Commercial Vehicle Loan is a credit product designed to help you finance the purchase of vehicles required for business operations. These loans are specifically tailored for purchasing commercial vehicles such as light commercial vehicles (LCVs), medium and heavy commercial vehicles (MHCVs), passenger carriers like vans and buses, and other commercial vehicles including trucks, tippers etc. By opting for a Commercial Vehicle Loan, you can avoid the significant upfront cost of buying a vehicle outright. Instead, you can spread the cost over a period through manageable monthly payments. This approach helps maintain cash flow and can allow your business to allocate funds to other critical areas.
Understand Your Business Needs
It is important to understand that a commercial vehicle is a business asset, and the intent of use must be clear. Before you apply for a Commercial Vehicle Loan, take a step back and assess your business needs e.g., the type and units of the vehicle your business requires. Knowing this will help you estimate the overall cost and choose a loan amount accordingly. In addition, depending on your budget, consider a new and used commercial vehicle loan that suits your needs the best.
Gather Financial Documents
When applying for a Commercial Vehicle Loan, you will have to submit necessary documents including business documents. While this may vary from lender to lender, in general, it is wiser to gather the following financial documents before proceeding to apply.
- Photo Identity and Address Proof: As per RBI defined KYC guidelines and set down by the lender.
- Experience Proof: Driving license, registration copy of commercial vehicle owned, current account statement.
- Income Proof: Previous month’s bank statement, ITR/audited financials for the last 2 years.
- Fleet List: List of vehicles owned & supporting documents for the same (wherever applicable).
Also Read: Unlocking the Benefits of Commercial Vehicle Loans for Your Business
Check Your Eligibility
Before applying for a Commercial Vehicle Loan, it is important to ensure that you meet the minimum eligibility criteria set by the lender. In general, the minimum eligibility criteria for a Commercial Vehicle Loan includes:
- 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
Evaluate Your Repayment Capacity
Securing a loan for commercial vehicle purchase is a big financial responsibility. It is important to make timely repayment of EMIs which demands an evaluation of existing monthly obligations. Start by estimating your current monthly business operation expenses and income flow. See how much surplus you can pay for EMIs without affecting other business operations.
You can consider using a Commercial Vehicle Loan EMI calculator to estimate your monthly repayments based on the loan amount, interest rate and tenure. Choose a tenure that keeps your EMIs affordable while limiting your overall interest outgo.
Preparing a Solid Business Plan
Commercial vehicles are vital business assets and hence it is important to finalise calculations of profitability, return on investment, cost of borrowing etc., beforehand. With established financial and a solid plan for revenue generation, the need and intent for the vehicles can be identified. This in turn will help you determine your loan amount, tenure etc.
Tips for a Smooth Application Process
Most lenders offer a hassle-free application process for a Commercial Vehicle Loan. Follow these tips to ensure smooth process and quick approval of your loan application.
- Maintain a Healthy Credit Profile: Clear any pending dues or defaults before applying for a loan. A strong credit record shows lenders that you are reliable and creditworthy.
- Choose the Right Loan Amount: Borrow only what you need. Taking a higher loan amount than necessary can strain your finances. A conservative approach increases the chances of quick approval manageable repayments.
- Keep a Co-Applicant Ready: If your business income or credit score isn’t strong enough then adding a co-applicant with better financials can sometimes help. This will improve your loan eligibility and might fetch you better loan terms.
To Conclude
Preparing for a Commercial Vehicle Loan goes beyond gathering business documents. It is also about proving that your business is stable, your goals are clear, and you can manage repayments confidently. For a successful Commercial Vehicle Loan application, it is recommended to take time to understand business needs, check your eligibility and evaluate your repayment capacity. For a hassle-free process, apply with a healthy credit profile with a score of 750 or more. Poonawalla Fincorp offers up to ₹1 Crore of Commercial Vehicle Loan at competitive interest rates. Avail now and get going with your Commercial Vehicle Loan application.
Frequently Asked Questions
Is it better to buy a new or used commercial vehicle with a loan?
Depending on your business needs and budget, you can choose between a new or used commercial vehicle loan. New vehicles may come with better loan terms and lower maintenance costs, while used vehicles can be more affordable upfront but may have higher interest rates.
What are the different types of commercial vehicles?
Commercial vehicles can be categorized based on their use those for transporting goods (like Light Commercial Vehicles (LCVs) and Goods Carriers) and those for transporting people (like Passenger Carriers). Medium and Heavy Commercial Vehicles (MHCVs) handle heavier loads and larger capacities.
What steps can I take to maintain a clean credit profile before applying for a loan?
Clear any pending dues or defaults and ensure timely payments on existing loans and credit cards. A strong credit record demonstrates reliability and creditworthiness to lenders.
What should I consider when choosing the loan tenure?
Choose a tenure that keeps your EMIs affordable while minimizing the overall interest outgo. A longer tenure reduces monthly payments but increases total interest paid, while a shorter tenure does the opposite.
What are the minimum eligibility criteria for a Commercial Vehicle Loan?
While it may vary from lender to lender, you must be between 18 and 65 years old at the time of loan maturity, having Indian citizenship, and being a self-employed non-professional. Various customer profiles such as individuals, proprietorships, partnerships, and companies are eligible.