Everything You Need to Know About Commercial Vehicle Loans: Types, Eligibility, and Advantages

Commercial Vehicle Loan

Loans for the purchase of vehicles for commercial or business use are provided to borrowers, who are typically self-employed people, trusts, partnership businesses, organizations, etc. People who work in the transportation industry can get these car loans. Buses, trucks, tippers, tankers, light commercial vehicles, and small commercial vehicles can all be purchased with a commercial vehicle loan.

A Commercial Vehicle Loan’s Purpose

Commercial vehicle loans, as previously stated, are available to fund the purchase of a vehicle that will be used for commercial or business purposes. Leading lenders in the country, such as ICICI Bank, YES Bank, Indiainfoline, Mahindra Finance, and others, provide these loans at low interest rates. Application for a commercial vehicle loan is a quick, simple process that involves little paperwork.

Specifications of Commercial Vehicle Loans

The following are some of the main features of commercial vehicle loans:

• If your profile complies with the requirements put forth by the lenders, you may be eligible for a commercial vehicle loan at a low interest rate.
• A commercial vehicle loan has a quick processing time and simple application and approval processes.
• Without requiring any security, the majority of reputable banks in India offer commercial vehicle loans at reasonable interest rates.
• A personal relationship manager may be assigned by some banks from the beginning to the vehicle purchase. All paperwork will be completed by them, and they will take care of all loan-related issues.
• The disbursal of the loan amount takes about 7 days after all necessary documents are submitted.

Commercial Vehicle Loan Types

Commercial loans are available for a range of commercial vehicles that are used in various locations and for a variety of purposes. It is classified into three broad categories based on the type of vehicle for which loans are sought:

• New commercial vehicle loan: This kind of loan is given to customers so they can buy new commercial vehicles for their businesses. Banks will fund up to 100% of the vehicle’s chassis or base frame value. In some cases, depending on the borrower’s profile, banks will provide additional funding for vehicle body construction.
• Old or used commercial vehicle loan: These loans are available to purchase all makes of pre-owned or used commercial vehicles. Borrowers can expect to receive financing for old vehicles up to 15 years old under this loan. The majority of banks offer funding of up to 90% of the used car’s value or depreciation grid value.
• Commercial vehicle refinancing: In this type of loan, banks either offer to refinance an existing loan on a commercial vehicle that is already paid off or they assume an existing loan on a commercial vehicle and, if the applicant qualifies, extend the loan to cover additional costs. By refinancing an existing loan at a lower interest rate, some borrowers can lower their monthly payments and free up some cash, but others can get direct financing on their free vehicles to cover their working capital needs.

Who Is Eligible for Commercial Car Loans?

To meet their business needs, banks and other lenders provide commercial car loans to a wide range of customers. In other words, different customer groups with a variety of profiles can apply for this kind of vehicle loan. The list of consumers deemed eligible for this loan is as follows:

• Individuals
• First-time users and buyers
• Small, medium and large-sized fleet owners
• Trusts and societies
• Schools and colleges
• Captive customers and transporters
• Proprietorship firms and Partnership firms
• Public Limited & Private Limited Companies

Individuals who are salaried or self-employed can apply for a commercial vehicle loan with blood relatives or family members. On the other hand, directors of private limited companies and partners in partnership firms are both eligible to apply jointly for this loan. 

Note: Banks and other financial institutions occasionally provide special schemes for first-time buyers and fleet owners.

Advantages of Commercial Vehicle Loans

Because of the numerous benefits that it provides, commercial vehicle loans are the most preferred option for borrowers who are either planning to purchase their first commercial vehicle or adding a new vehicle to their existing fleet of commercial vehicles. Below are a few of the key characteristics of commercial vehicle loans:

• Flexible repayment tenure: Commercial car loans typically offer repayment periods of up to five years. This guarantees borrowers a low EMI amount, allowing them to repay their debts without experiencing an undue financial burden.
• Multiple vehicle financing: For the purpose of expanding your business, you can obtain financing for a variety of vehicles, including tippers, trucks, buses, trailers, tankers, and small and light commercial vehicles, whether you are an individual borrower or the owner of a fleet.
• Easy processing: Applying for a commercial vehicle loan is a quick, simple, and convenient process. Banks typically process new or used vehicle loan applications in 4-5 days after receiving all required documentation.
• Simple documentation: The documentation process for commercial vehicle loans is simple and quick. Users don’t need to go to the bank directly because they can easily upload all required documents online.
• No credit-score compulsion: Commercial vehicle loans, unlike other types of loans, do not require any prior credit history. Borrowers with poor or no credit can easily obtain a commercial vehicle loan.
• Caters to multiple needs: The loan schemes are designed to meet the borrowers’ diverse needs, such as new and used vehicle financing, loan top-ups, and refinancing of loans/vehicles for working capital. 
• Customized solutions: Each commercial vehicle loan scheme is tailored to the vehicle type, loan duration, and financial ability of each individual borrower in order to meet the specific needs of the customer.

Commercial Car Loan Documentation

• Properly completed application form with a photo attached
• Two passport-sized photos
• Processing fee cheque

KYC documents

• 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)

Income proof

• Salary Slips for the Previous 3 Months
• Recent six-month bank statement
• Form No.16
• Updated ITR for last 2 years
• Official identification photocopy

Experience proof

• In the case of first-time buyers, valid documents demonstrating relevant experience

Other Documents (As applicable) 

• Proof of current vehicle ownership
• Vehicle information and valuation report
• Vehicle insurance and RC copy
• Fleet list specifics (for operators/owners of small, medium, and large fleets)
• In the case of first-time buyers, fleet operators/owners, and experienced borrowers, trade references are required.
• Proof of property ownership (in the case of farmers)
• Proprietorship declaration, partnership agreement (MOA/AOA), board resolution, and two years of audited financials (in the case of private/limited companies, partnership firms, trusts, and societies)
• Loan repayment history (if any)

Commercial Vehicle Loan Eligibility Criteria Loan

For new commercial vehicles

• Both salaried and self-employed borrowers should have a minimum of two years of profitable business operations, as well as more than two years of stable employment.
• Trusts, societies, associations, and private/limited companies must be at least two years old.
• The ownership of one or two commercial vehicles for a period of one to three years must be verified by fleet managers and other current vehicle owners.
• Trusts, societies, private/limited companies, and partnership businesses must provide two years of audited financials.
• In some cases, individuals, first-time buyers, and fleet operators/owners will need an internal or external guarantor.
• Customers must have a minimum of two years of stable residential living. Certain terms and conditions apply to borrowers with less stability.

For old commercial vehicles

The following requirements must also be met by applicants for a commercial auto loan for used vehicles in addition to the standard requirements:

• Customers must have 3 to 5 years of relevant experience, depending on their individual profiles.
• Minimum one year of two or more vehicle ownership.
• Commercial vehicle repayment history of at least one year

Vital Aspects of a Commercial Vehicle Loan

• Application process: First, the borrower must complete an online application form, then provide all required documents, and finally provide the personal guarantor’s information if required.
• Loan approval: The bank will conduct a check to confirm the validity of the paperwork and the eligibility of the borrower. After reviewing the documentation, if the borrower is found to be eligible, the loan will be approved in 2 to 5 working days.
• Processing charges: Banks charge a minimal non-refundable fee for processing a commercial vehicle loan. This sum varies depending on the size of the loan requested, but typically falls between 2% and 4% of the loan amount. 
• Loan Amount/Margin: Depending on each customer’s unique profile, different commercial vehicle loans have different maximum loan amounts. Borrowers are eligible for funding that covers up to 100% of the vehicle’s chassis.
• A commercial vehicle loan typically has a repayment period that ranges from 6 months to 60 months (5 years). The borrower is permitted to pay back the money in convenient monthly EMIs.
• Security/collateral: Depending on the borrower’s profile and the product, some banks offer loans for commercial vehicles without requiring any collateral or guarantors, while others do.
• Loan prepayment: After six months from the date of application, borrowers may prepay their loans by paying a prepayment fee that may be up to five percent of the outstanding balance. However, partial loan prepayment is usually not permitted.

Interest Rates on Commercial Vehicle Loans

Commercial vehicle interest rates differ from one bank to the next. Lenders determine the amount based on the customer and the vehicle segment. The bank/lending entity confirms the final rate of interest to be charged for that profile after evaluating the documents and the profile of any individual borrower. In general, it ranges from 10% to 15% p.a. The following are the interest rates on commercial vehicle loans offered by some of the leading banks and financial institutions:

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