Commercial Vehicle Loan
Commercial vehicle loans are loans offered to borrowers, usually self-employed individuals, trusts, partnership firms, organisations, etc., for the purchase of vehicles for commercial or business purposes. These loans are availed by those who are involved in the transportation business. A commercial vehicle loan can be used to purchase buses, trucks, tippers, tankers, light and small commercial vehicles.
Purpose of a Commercial Vehicle Loan
As stated above, commercial vehicle loans are availed to fund the purchase of a vehicle that will generally be used for commercial or business purposes. These loans are offered by leading lenders in the country such as ICICI Bank, YES Bank, Indiainfoline, Mahindra Finance, etc., at affordable interest rates. The entire process of commercial vehicle loan application is swift, hassle-free, and requires less paperwork.
Features of Commercial Vehicle Loans
- You can get a commercial vehicle loan at a low interest if your profile matches with the criteria put forward by the lenders.
- The processing time of a commercial vehicle loan is fast with easy documentation and approval.
- Most of the prominent banks in India provide commercial vehicle loans at affordable rate of interest without any security.
- Some of the banks assign a personal relationship manager from starting till procurement of the vehicle. He/she will do all documentation and address every issue related to the loan.
- Once all required documents are submitted, it takes around 7 days for the disbursal of the loan amount.
Types of Commercial Vehicle Loans
Commercial loans can be availed for a variety of commercial vehicles which are used at different places to serve various purposes. Based on the type of vehicles these loans are sought for, commercial vehicle finance is differentiated in three broad categories, namely:
1. New commercial vehicle loan
This type of commercial vehicle loan is provided to the customers for the purchase of new commercial vehicles for business purpose. Banks offer up to 100% funding on the chassis or base frame value of the vehicle. Some of the banks provide additional funding for the body construction of the vehicles in selective cases based on the borrower’s profile.
2. Old commercial vehicle loan
Old or used commercial vehicle loan are those loans which are offered to purchase all makes of pre-owned or used commercial vehicles. Under this loan, borrowers can expect to get finance against old vehicles which are up to 15 years old. Most of the banks provide up to 90% funding on the used vehicle’s value or depreciation grid value.
3. Commercial vehicle refinancing
Under commercial vehicle refinancing, banks either offer loan on an existing vehicle which is free of loan 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 of their existing loan and free up some cash by refinancing an existing loan at lower interest rates, some others can get direct finance on their free vehicles to meet the working capital needs.
Who Can Avail Commercial Car Loans?
Banks and other lenders offer commercial car loan to a broad array of customers to meet their business needs. In other words, this type of vehicle loan can be availed by various segments of customers having diverse profiles. Here is the list of the consumers considered to be eligible for this loan:
- First-time users and buyers
- Small, medium and large-sized fleet owners
- Proprietorship firms and Partnership firms
- Public Limited & Private Limited Companies
- Trusts and societies
- Schools and colleges
- Captive customers and transporters
Salaried and self-employed individuals can co-apply for a commercial vehicle loan with blood relatives or family members. On the other hand, the partners in partnership firms and the directors in private limited companies can jointly apply for this loan.
Note: Sometimes, banks or financial organisations offer special schemes for first-time buyers and fleet operators/owners.
Benefits of a Commercial Vehicle Loan
Commercial vehicle loan stands out to be the most preferred option for borrowers who are either intending to buy their first commercial vehicle or planning to add a new vehicle to their existing fleet of commercial vehicles due to the plethora of benefits that it offers. Some of the amazing benefits offered by these type of loans are as follows:
- Flexible repayment tenure- Usually, the repayment tenure offered in commercial car loan is up to 5 years. This ensures low EMI amount to the borrowers enabling them to pay off the EMIs without any undue financial burden.
- Multiple vehicle financing- Whether you are an individual borrower or a fleet owner, you can get finance for a variety of vehicles such as tippers, trucks, buses, trailers, tankers, and other small and light commercial vehicles to grow your business.
- Easy processing- The process of applying for a commercial vehicle loan is easy, fast and convenient. After the submission of all the required documents, banks usually take 4-5 days to process a new or used vehicle loan application.
- Simple documentation- Commercial vehicle loans come with a hassle-free and quick documentation process. The users can easily upload all the mandated documents online without visiting the bank directly.
- No credit-score compulsion- Unlikely other loans, commercial vehicle loans don’t require any existing credit score. Borrowers having low or even zero credit score can avail a commercial vehicle loan with ease.
- Caters to multiple needs: The loan schemes are designed to cater to the borrowers’ diverse requirements including new and used vehicle financing, top up on existing loan and refinancing of loans/vehicles for working capital.
- Customised solutions: In order to meet the specific requirements of the customers, every commercial vehicle loan scheme is customised according to the vehicle type, loan duration and financial ability of each individual borrower.
Commercial Car Loan Documentation
- Duly filled application form with attached photograph
- 2 passport-size photographs
- Cheque for processing fee
- Age proof- Aadhaar Card/PAN Card/Voter's ID card/Driving License/Passport (Any one)
- Identity proof- Aadhaar Card/Voter's ID card/Driving License/Passport (Any one)
- Residence proof- Rental agreement/Voter’s ID Card/Passport/Ration card/Tel bill or Elec. Bill/Trade License/ Sales Tax Certificate (Any one)
- Signature verification proof-Driving License/PAN Card/Registered Sale Deed/Govt. ID Card (For Govt. employees) (Any one)
- Last 3 months Salary Slips
- Latest 6 months bank statement
- Form No.16
- Updated ITR for last 2 years
- Photocopy of official ID
- Valid documents to prove relevant experience (In case of first-time buyers)
Other Documents (As applicable)
- Existing vehicle ownership proof
- Vehicle details & valuation report
- Insurance and RC copy of vehicle
- Fleet list details (In case of small, medium, and large fleet operators/owners)
- Trade references (In case of first-time buyers, fleet operators/owners & experienced borrowers)
- Property ownership proof (In case of farmers)
- Proprietorship decl., partnership deed, (MOA/AOA), board resolution & 2 years audited financials (In case of Private/Limited companies, partnership firms, trusts & societies)
- Loan repayment track (if any)
Eligibility Criteria for Commercial Vehicle Loan
For new commercial vehicles
- Salaried borrowers should have more than 2 years of employment stability and self-employed individuals must have at least 2 years of business experience.
- Private/Limited companies, partnership firms, trusts, societies and associations must be in existence for minimum 2 years.
- Fleet operators and other existing vehicle owners require to have 1 to 3 years of vehicle ownership proof of one or two commercial vehicles.
- Private/Limited companies, partnership firms, trusts & societies Companies need to provide 2 years of audited financials.
- Internal/external guarantor needed sometimes in case of individuals, first-time buyers and fleet operators/owners.
- The customers need to have minimum residential stability of 2 years. *(Borrowers with lesser stability are subjected to certain terms and conditions).
For old commercial vehicles
- Borrowers applying for a commercial car loan for old vehicles need to fulfil the following criteria along with the basic ones:
- Customers need to have relevant experience of 3 to 5 years depending on individual profile.
- Minimum 1 year of ownership of at least 2 vehicles.
- At least 1 year repayment track of commercial vehicles
Vital Aspects of a Commercial Vehicle Loan
- Application process- At first, the borrower needs to fill up an application form online, then furnish all the necessary documents and finally provide the details of the personal guarantor if required.
- Loan approval- The bank will run a check to verify the documents and borrower’s eligibility. If the borrower is found to be eligible, the loan will be approved within 2 to 5 working days from the time of documentation.
Processing charges- Banks ask for a minimal non-refundable amount for processing a commercial vehicle loan. This amount depends on the amount of the loan applied for and generally ranges from 2% to 4% of the loan amount.
Loan Amount/Margin- The maximum loan amount for commercial vehicles varies from customer to customer based on their individual profile. A borrower can get up funding of up to 100% of the vehicle’s chassis.
Repayment tenure- The repayment tenure for a commercial vehicle loan usually starts from 6 months and goes up to 60 months (5 years). The borrower is allowed to repay the amount in easy monthly EMIs.
Security/collateral- While certain banks offer loans for commercial vehicles without any security or guarantor, some require a guarantor or co-applicant depending on the borrower’s profile and the product.
Pre-payment of loan- The borrowers can prepay the loan after 6 months of availing it by paying a pre-payment fee of up to 5% of the remaining loan amount. However, part pre-payment of the loan is usually not allowed.
Commercial Vehicle Loan Interest Rates
The interest rate of commercial vehicle varies from bank to bank. The amount is fixed by the lenders on the basis of the customer and the segment of vehicle. After evaluating the documents and the profile of any individual borrower, the bank/lending entity confirms the final rate of interest to be charged for that profile. Generally, it ranges between 10% p.a. to 15% p.a. The interest rates on commercial vehicle loan offered by some of the leading banks and financial institutions have been listed below:
Will depend on the customer’s profile, tenure of loan, etc.
Additional documentation charges – Rs.350
Starts from 12%
- Processing Fee: 1% of loan amount or Rs.4,500 to Rs.8,000 whichever is higher.
- Prepayment Charges: 6% within the first year and 4% after the first year.
- Loan Cancellation: Rs.3,000
8.70% to 21.25% IRR
- Processing Fees: Up to 1.50% of the loan amount.
- Foreclosure/Prepayment Charges: Within 1 year from 1st EMI – 4% of Principal Outstanding. After 1 year from 1st EMI – 2% of Principal Outstanding
Kotak Mahindra Bank
Minimum: Reference Rate or Prevailing MCLR
- Processing Fee: Up to 2% of loan amount
- Documentation Charges: Up to Rs.5,000
- Prepayment/Foreclosure Charges: 5% of Principal Outstanding based on reducing balance repayment date
10.25% to 15%
- Processing Fee: Rs.5,000
- Foreclosure Charges: Up to 6 months from disbursement date – 10% of the Principal Outstanding.
- Part-Prepayment Charges: After 6 months from disbursement date – 5% of the part payment amount. Up to 6 months from disbursement date – 10% of the part payment amount
Frequently Asked Questions on Commercial Vehicle Loans
Can I avail a commercial vehicle loan if I do not meet the eligibility criteria?
Yes. If you do not fulfil the eligibility criteria, you can still avail the loan by applying for the loan with a co-applicant. If the credit and financial profile of your co-applicant is satisfactory, you may be eligible to get a loan. However, it will be at the discretion of the lender.
Do I need to provide a guarantor for availing a commercial vehicle loan?
Yes, you will need a guarantor to avail a commercial vehicle loan. This criterion can, however, be waived off depending on your credit and profile strengths.
If I want to avail a commercial vehicle loan, who can be my co-applicants?
The co-applicants on a commercial vehicle loan could be your spouse, sibling, or your parents.
Can I sell the vehicle before I repay the loan?
No, you will not be able to sell the vehicle unless the entire loan amount has been repaid. Once the outstanding amount is cleared, the bank/lender will issue a No-Objection Certificate (NOC) post which the vehicle can be sold.
After I pay the last EMI, will I get the legal claim on the vehicle?
After the payment of the last EMI, the bank will cancel the lien on the commercial vehicle and issue a loan closure letter, Form 35, and a No Objection Certificate (NOC) to the RTO for removing the lien from the RC book. Then a similar NOC will be issued to the insurance firm requesting them to remove the lien from the policy.
GST of 18% is applicable on all banking products and services from the 1st of July, 2017.