Factors to consider when availing loans for commercial vehicles

What is a Commercial Vehicle Loan?

A commercial vehicle loan is issued to self-employed individuals, entities and companies to purchase vehicles for commercial usage. Commercial vehicles are much expensive when compared to other vehicles. Availing a commercial vehicle loan is not that difficult as banks and NBFCs offer commercial vehicle loans at relaxed terms and conditions.

However, an applicant must meet the prescribed eligibility criteria. Examples of commercial vehicles are tippers, tankers. trucks, buses and other lightweight commercial vehicles. Most commercial banks issue commercial vehicle loans with minimum documentation and are generally hassle-free process. 

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Highlights of Commercial Vehicle Loans:

• In today’s competitive market, banks have relaxed their terms and conditions, aiming to help borrowers avail commercial vehicle loans easily.
• You can avail commercial vehicle loans at moderate interest rates, if you fulfill the prescribed eligibility criteria.
• Most commercial banks issue commercial vehicle loans without any security as the commercial vehicle itself is considered as the security for the loan. 
• Few banks assign a relationship manager from the initiation of the purchase of the vehicle till procurement of the commercial vehicle. He/she take care of the documentation and addresses all concerns pertaining to the loan.
• Once you submit the requisite documents, banks generally disburse the loan within 7 days.

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Kinds of Commercial Vehicle Loans:

Commercial vehicle loans are based on the type of vehicle you are buying. Commercial vehicle loans are broadly classified into the following categories:

• New commercial vehicle loan: this type of vehicle loans are issued to customers to facilitate the purchase of a brand new commercial vehicle. Banks offer up to 100% cost of the vehicle.
• Old commercial vehicle loans: Old commercial vehicle loans are issued to customers to purchase a used commercial vehicle. Banks typically offer up to 90% of the used vehicle's value. Vehicles that are older than 15 years are not financed. 
• Commercial vehicle refinancing loan: Under commercial vehicle refinancing, banks either offer loans on an existing vehicle which is free of loans or take over an existing commercial vehicle loan and provide additional finance for it based on eligibility. While some borrowers can reduce the monthly EMIs on their existing loans and free up cash by refinancing an existing loan at lower interest rates, some others can get direct finance on their vehicles to meet the working capital needs.

Processing of the loan:

The method of applying for a commerical vehicle loan is exactly the same as that of other loans. This process can be done online and most lenders nowadays have online portals that offer these facilities.

The applicant must then fill the form with the right details and attest their signature. The applicant must furnish the relevant documents while submitting the application form. Generally, it takes about a week's time to process your application.

The bank then sends confirmation on whether the loan is approved or not. If yes, then the applicant must fulfill the formalities and go through bank verification before the loan is sanctioned.

Requisite Documents to Avail Commercial Vehicle Loans:

Listed below are the documents that must be submitted for verification purposes for availing a vehicle loan:

• Proof of address: passport, ration card, voter ID
• Proof of experience in the relevant area
• Track record of the past loan (if any)
• Bank statements ( previous 6 months)
• Income tax returns of previous 2 years
• Audited balance sheet
• Profit and loss account statement
• List of vehicles owned by the applicant
• Copies of registration certificate

Some banks may also ask for transportation contracts, for higher quantum of funding. In some cases, banks may ask also for a personal guarantor.

Who is Eligible to Avail a Commercial Vehicle Loan?

Commercial vehicle loans are generally availed by customers to meet business needs. Given below are the lists of customers who are considered eligible for availing commercial vehicle loans:

• Self employed individuals
• First time users and buyers
• Transportation business owners with small, medium and large fleets
• Proprietorship firms and partnership firms
• Public limited and private limited companies
• Schools and collages
• Trusts, societies and hospitals
• Captive customers and transporters

Commercial Vehicle Loans can be availed by the partners of joint ventures and directors of the private limited companies. Also, commercial vehicle loans are issued for joint applicants. For individuals availing commercial vehicle loans, they may include blood relatives as co-applicants for joint loans. The minimum commercial vehicle loan issued for buying commercial vehicles is Rs 1 Lakh and the maximum amount of loans availed by big corporates is capped at Rs 5 crores.

SEE ALSO:  Who Can Avail of a Loan?

Process of Approval:

The process of applying and sanctioning of the loan requires some time. Bank generally takes about a week to approve the application and verification process. The time taken for sanctioning commercial vehicle loans varies across lenders. The time taken for the sanctioning of the commercial vehicle loan may vary depending on the nature of the loan, amount of loan and location/state of the applicant. Normally, banks sanction and disburse loans directly to the vehicle dealer from whom the vehicle is being purchased. 

Loan Quantum and duration:

The amount of loan issued varies as per the specific requirements of individuals and organizations. Banks can fund up to 100% for the chassis of the vehicle. However, body funding can be extended on the case on case requirements and on prior experiences.

Chassis is the internal structure of the vehicle including the engine, transmission, driveshaft, differential, and suspension. The commercial vehicle loans are generally sanctioned for a period of sixty months.

Rates of interest:

All major Indian banks issue commercial vehicle loans. The interest rate varies across lenders. The rate of interest ranges between 10% to 15% a year, depending on the customer and the vehicle. There are other factors that the lenders consider while sanctioning these loans, like the number of vehicles owned, business turnover, repayment history and so on.

Processing Charges

Processing fees are percentage based fees, with every loan processed and sanctioned. It is a one-time fee levied by lenders for one-time loan processing. The processing fee is non-refundable even if the loan application is rejected.

For availing a commercial vehicle loan, the borrower must pay certain charges which include processing fees, stamp duty, and vehicle evaluation charges. The processing fee depends on the amount of loan sanctioned and generally ranges between 2-4% of the sanctioned amount. Similarly, the stamp duty is 2% for a loan of Rs 5 Lakh, 3% for loans above Rs 5 Lakhs and is generally 4% for loans beyond Rs 10 Lakhs.

Repayment of the loan

The repayment process is through EMIS. The EMIs comprises the principal as well as the interest that is calculated and specified by the lender, based on the rate of interest mentioned on the loan agreement. Pre-closure of vehicle loans are allowed. However, the borrower must pay 2% of the outstanding loan amount.

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