Truck loan refinancing can reduce monthly repayments for Australian owner-operators and transport businesses by replacing an existing truck loan with a new finance facility.
Lower repayments can come from a lower interest rate, a longer finance term, a different balloon payment or a combination of these changes. The important part is working out whether the new structure actually improves the business's position once the existing payout, lender costs, remaining loan term and total amount repayable are considered.
For a transport business, reducing a truck repayment can leave more working capital available for fuel, tyres, servicing, insurance, wages and unexpected repairs. But a lower monthly repayment does not automatically mean cheaper finance overall.
The Asset Finance Shop (TAFS) can assess an existing truck loan, review the business and compare refinancing options through access to more than 80 bank and non-bank lenders.
This guide explains how truck loan refinancing works, how repayments can be reduced, what lenders assess, what to do after a previous application decline and how to compare a refinance properly before proceeding.
Truck loan refinancing means replacing your existing truck finance with a new finance facility.
The new lender pays out the amount owing to the current lender.
From that point, you make repayments under the new finance agreement.
A transport business may consider refinancing to:
The key question is whether the new finance provides a meaningful benefit after all costs are considered.
Yes.
Truck loan refinancing can potentially reduce monthly repayments.
There are three main ways this usually happens:
Sometimes all three are used together.
For example, a business with three years remaining on its current truck loan might refinance the outstanding balance over a new five-year term.
The monthly repayment will generally fall because the outstanding amount is being spread over more repayments.
However, the business will also remain in debt for longer.
That is why the new repayment should never be assessed by itself.
If the business qualifies for a more suitable interest rate than when the truck was originally financed, the interest component of the repayment may fall.
A business may now present more strongly because it has:
The available rate will still depend on the lender, truck and complete application.
A lower interest rate is not guaranteed simply because you refinance.
Extending the term spreads the outstanding loan across more repayments.
For example:
Existing balance: $120,000
Remaining term: 3 years
Refinancing that balance over a new five-year term would generally reduce the monthly payment.
The trade-off is that the loan remains outstanding for another two years.
That can result in more total interest being paid.
The term also needs to make sense against the truck's:
Reducing the monthly repayment is less useful if the business is still paying for the truck when it needs to be replaced.
A balloon is an amount of principal left outstanding at the end of the finance term.
Including a larger balloon can reduce regular repayments because less principal is repaid throughout the term.
For example, refinancing with:
No balloon
will generally produce a higher regular repayment than:
A 20% balloon
on the same amount and finance term.
The trade-off is a larger final payment.
The balloon should reflect:
A larger balloon should not be used simply because it produces the lowest monthly repayment.
Not necessarily.
This is one of the most important parts of truck loan refinancing.
A refinance can reduce the monthly payment while increasing the total amount paid over the life of the finance.
For example, extending a remaining three-year loan into a new five-year facility may significantly reduce the monthly repayment.
But the business is paying interest for a longer period.
You need to compare:
The right question is not simply:
"How much can I reduce my repayment?"
It is:
"What do I gain from reducing the repayment, and what does that change cost over the complete finance term?"
A lower repayment can make commercial sense where the business wants to preserve more working capital.
Transport businesses have significant ongoing operating expenses.
These can include:
Reducing a repayment by even a few hundred dollars per month can improve available cash flow.
The question is what the business will do with that cash.
If the lower repayment helps the business:
then the refinance may provide a useful commercial benefit.
Truck loan refinancing does not automatically make sense every time a lower repayment is available.
It may provide limited benefit where:
The numbers need to be considered together.
Start by collecting the information from the existing facility.
You should know:
The outstanding balance and payout amount are not always exactly the same.
A formal payout may include amounts such as:
Use the actual payout figure when comparing refinancing options.
The payout figure is the amount required to completely close the existing finance facility on a particular date.
The new lender generally needs to pay this amount to the existing lender as part of the refinance.
The payout can include:
Because payout figures can change with time, the lender may request an updated payout before settlement.
Potentially.
The existing finance agreement may include early payout or termination costs.
The amount depends on the lender and contract.
Before refinancing, ask:
What will it cost to completely pay out my existing truck loan today?
Do not rely only on the outstanding balance shown on an online account.
Request the actual payout figure.
Truck loan refinancing is still a new credit application.
The lender will usually consider both the business and the truck.
The lender may review:
Recent business bank statements can show:
A good repayment history on the current truck finance can strengthen a refinance application.
The lender may want to see that:
The lender may review:
The truck can also be assessed.
This may include:
The new lender needs to understand how much must be refinanced.
The relationship between the payout and the truck's current value is particularly important.
Yes.
The lender needs to be comfortable that the truck provides appropriate security for the new finance.
Consider:
Truck value: $150,000
Current payout: $100,000
The business has approximately $50,000 of equity before transaction costs.
Compare that with:
Truck value: $100,000
Current payout: $130,000
The loan balance is higher than the estimated value of the truck.
The second scenario may be more difficult to refinance because there is less asset support.
Truck equity is broadly the difference between the truck's current value and the amount required to pay out the finance.
For example:
Truck value: $180,000
Finance payout: $120,000
Approximate equity:
$60,000
The actual lender assessment may use its own valuation.
Strong equity can improve the structure of a refinance.
Potentially.
If the truck is worth more than the amount owing, selected lenders may allow part of the available equity to be released for an eligible business purpose.
For example, funds might be used for:
This is different from refinancing purely to lower repayments.
The lender will assess:
Yes.
Commercial truck finance is commonly structured using a chattel mortgage.
During refinancing:
The business already owns the truck.
The refinance replaces the finance attached to it.
Generally, refinancing the loan does not mean the business has purchased the truck again.
The original GST treatment relates to the original truck purchase.
The refinance simply replaces the existing finance facility.
The new loan may involve:
Speak with your accountant about the tax treatment of these amounts.
Yes.
The existing balloon forms part of the current finance obligation and therefore affects the payout.
A replacement loan may also include a balloon, subject to:
Do not simply copy the old balloon into the new loan.
The business and truck may be in a very different position from when the original finance was arranged.
Yes.
Selected lenders can refinance used commercial trucks.
The available options can depend on:
Older trucks may have shorter available finance terms.
This can limit how much the regular repayment can be reduced.
Yes.
Owner-operators and sole traders can apply for truck loan refinancing.
The lender may assess:
A strong repayment history on the current truck loan can support the application.
Potentially.
A transport business may be able to refinance several existing facilities.
The lender may assess each truck individually and the business as a whole.
This can include:
The new structure should provide a clear benefit.
It should not simply move several loans from one lender to another without improving the overall position.
A declined truck refinancing application does not automatically mean refinancing is impossible.
The useful next step is understanding why that lender did not approve the application.
Possible reasons can include:
Different lenders can use different criteria.
The reason for the decline matters before deciding what to do next.
Start by answering four questions.
Ask whether the issue related to:
For example:
Different lenders have different:
Sometimes the strongest option is not another refinance application.
The current facility may already provide a reasonable structure once exit costs and a new loan are considered.
The goal should be improving the business's position, not refinancing simply because the first application was declined.
A new application should not be made simply because another lender exists.
First understand why the previous application was unsuccessful.
Otherwise the same issue may appear again.
A lower interest rate can help, but it is only one part of the structure.
Compare:
A refinance can dramatically reduce the monthly payment by extending the term.
That does not automatically make it cheaper.
The payout is the actual amount the new lender needs to refinance.
Use the formal payout, not a rough estimate.
The finance term should suit the remaining working life of the truck.
A larger balloon can create a very attractive monthly repayment.
It can also create a difficult final payment later.
Lenders will assess the business's complete financial commitments.
Provide the full position from the beginning.
Auto loan refinancing is often discussed in relation to personal passenger vehicles.
Commercial truck refinancing has additional considerations because the vehicle is an income-producing business asset.
A commercial truck lender may assess:
This makes truck loan refinancing different from a standard consumer vehicle loan refinance.
The lender is assessing both the borrower and the underlying transport business.
It can.
A business may qualify for different finance options than it did when the original truck loan was arranged.
For example, the business may now have:
Those changes can improve refinancing eligibility.
They do not guarantee a lower rate, but they may give the business access to different lender options.
Potentially.
Selected lenders can consider truck loan refinancing where there are previous credit issues.
The lender may look at:
Previous credit issues can affect:
A lower repayment or interest rate is not guaranteed.
Potentially.
Selected lenders may consider truck loan refinancing where a business has ATO debt.
The application may be stronger where:
The lender may assess:
Potentially.
Selected lenders can consider low doc commercial vehicle refinancing.
Instead of complete financial statements, the lender may assess information including:
The exact documentation depends on the lender and application.
Low doc does not mean no assessment.
For an initial assessment, prepare:
Before settlement, you may also need:
Some applications may also require:
Having the existing finance information ready makes it much easier to compare the current facility against a proposed refinance.
Build a simple side-by-side comparison.
|
Item |
Current Truck Loan |
Proposed Refinance |
|
Current payout / finance amount |
||
|
Interest rate |
||
|
Monthly repayment |
||
|
Remaining / new term |
||
|
Balloon |
||
|
Payout or exit costs |
||
|
New lender establishment costs |
||
|
Total estimated amount repayable |
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|
Expected truck value at end |
Then ask what the business is trying to achieve.
If the objective is cash flow, focus on:
If the objective is reducing finance cost, focus on:
These are related goals, but they are not the same thing.
Consider a business with an existing truck loan.
The refinance may provide significantly more cash flow each month.
But it also:
That may still be a good decision if the business values the additional working capital.
But it should be a deliberate decision.
There is no single percentage reduction that automatically makes a truck refinance worthwhile.
A rate reduction needs to be considered against:
A small reduction in rate on a large outstanding balance may be meaningful.
A larger rate reduction may provide little value if the existing loan is almost finished and carries substantial payout costs.
Compare dollar outcomes rather than focusing only on the percentage rate.
There is no universal minimum period that applies to every commercial truck loan.
A lender may consider:
Refinancing very early can provide less benefit where the current loan has significant exit costs.
There should be a clear commercial reason for replacing the existing finance.
Yes.
Lower monthly repayments can leave more money in the business each month.
For an owner-operator, this can provide additional room for:
That is one of the main reasons transport businesses consider refinancing.
However, extending debt simply to create more monthly cash flow should still be considered against the long-term cost.
Sometimes the right question is not whether to refinance the current truck.
It is whether the truck should be replaced.
Consider:
Refinancing an ageing truck over a longer term may reduce repayments but leave the business carrying debt on equipment that increasingly costs more to maintain.
In some situations, replacing the truck may provide a stronger long-term outcome.
Potentially.
A transport business planning to add another truck may first review its existing finance commitments.
Restructuring an existing loan could potentially reduce monthly commitments and improve cash flow before the next purchase.
However, the lender assessing the additional truck will still consider:
The refinancing and new purchase need to make sense together.
TAFS looks at:
The internal credit team can review:
TAFS considers:
TAFS starts with a soft credit check that leaves no mark on the applicant's credit file.
TAFS has access to more than 80 bank and non-bank lenders.
The refinance can be assessed against lenders that suit:
TAFS can compare:
This helps determine whether the refinance provides a meaningful benefit.
Once the business selects a suitable option, the formal application is submitted to the chosen lender.
The new lender pays out the current finance facility.
The existing lender releases its security and the new lender registers its security over the truck.
The business then begins making repayments under the new finance arrangement.
Before proceeding, ask:
Yes.
Truck loan refinancing can reduce repayments through a lower interest rate, longer term, different balloon payment or a combination of these.
Compare the complete finance cost before proceeding.
No.
A lower monthly repayment can come from extending the loan term or adding a balloon.
That can increase the total amount of interest paid.
Potentially.
A business may qualify for a different rate if its trading history, financial position, credit conduct or repayment record has improved.
The rate offered depends on current lender criteria.
Generally, yes.
Spreading the outstanding balance over more repayments normally reduces the regular payment.
The trade-off is that the debt remains outstanding longer.
Potentially.
First understand why the previous application was declined.
Different lenders can use different criteria, but making another application without addressing the original issue can create the same result.
They can assess:
TAFS does not use that approach.
TAFS starts with a soft credit check and internal assessment before making one formal application to the selected lender.
There is no single minimum timeframe that applies to every lender.
The lender will assess repayment history, current payout, truck value and whether the refinance provides a reasonable benefit.
Yes.
The existing balloon forms part of the current payout.
The replacement finance may also include a balloon subject to lender criteria.
Yes.
Selected lenders refinance used commercial trucks.
The available options depend on age, kilometres, condition, payout and market value.
Yes.
Owner-operators and sole traders can apply for truck loan refinancing.
The lender can assess business income, truck repayment conduct, transport experience, credit position, truck value and payout.
Potentially.
A transport business may be able to restructure several facilities where the trucks, business cash flow and overall debt position support the application.
Potentially.
Selected lenders may consider applications with ATO debt.
The lender may look at the amount owing, payment arrangement, business cash flow, truck value and affordability.
Potentially.
The available options depend on the type of issue, when it occurred, current conduct and the strength of the overall application.
The basic concept is similar because one vehicle loan replaces another.
Commercial truck refinancing involves additional assessment of the business, ABN, trading history, truck income, existing commercial commitments and vehicle value.
Generally, refinancing replaces the loan rather than purchasing the truck again.
Speak with your accountant about the treatment of interest and finance costs associated with the new facility.
For an initial assessment, you may need:
Additional information may be required depending on the lender and truck.
Straightforward applications can be approved in as little as 24 hours once the required information has been supplied.
Settlement can take additional time while the existing payout, security release, vehicle information and new finance documents are completed.
Lower truck repayments can improve cash flow, but the lowest repayment is not always the strongest financial outcome.
The current payout, proposed rate, remaining term, new term, balloon, truck value and total cost all need to be considered together.
TAFS can review the existing facility and compare suitable refinancing options through access to more than 80 bank and non-bank lenders before one formal application is submitted to the selected lender.
The Asset Finance Shop (TAFS) is a commercial asset finance brokerage based in Sydney.
Information on this page is general in nature and doesn't take your personal circumstances into account. Speak to a TAFS broker for options tailored to your business, and to your accountant regarding tax treatment.