5 Things To Know About Work Van Loans

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A commercial or work van is one of the essential components of most businesses. It enables a wide range of business activities, like travel and delivery. That’s why it’s unfortunate that work vans have recently become much more challenging to obtain. Perhaps it’s because van manufacturers couldn’t hit their production goals, or maybe it’s due to the massive increase in the number of service businesses per city. In any case, finding a work van will prove to be challenging.

That’s most likely why many business owners nowadays don’t buy work or commercial vans in cash. Instead, they look for lenders that provide new or used van finance and lease options

If you’re in the same predicament, you might consider doing the same thing, but is it truly the right choice? Find out as we go over several things you need to know about work van loans.

1. The Requirements Will Be Different From Regular Car Loans

If you’ve previously obtained a personal vehicle loan, you may be familiar with the documentation required. But if you’ve never taken out a loan or simply forgot, here are the requirements:

  • A government-issued ID or any proof of identity
  • Bank statements or any proof of income
  • Any document that can serve as proof of your residence
  • A driver’s license

For work van loans, here are the necessary requirements:

  • For proof of identity, in addition to the government-issued ID, you must also provide both your Employer Identification Number (EIN) and a business license.
  • In addition to bank statements, you can also provide tax returns, cash-flow, and profit-loss statements for proof of income.
  • You must also show the lender your partnership agreement or limited liability company document, depending on the type of business entity you’re running.
  • A driver’s license

Due to the disparity in requirements, a work van loan application usually takes longer than a personal car loan application process. However, that still depends on the lender, as some can approve your work van loan application within a few hours.

2. Prepayment Penalty Also Applies To Work Van Loans

It’s common practice for borrowers to pay all or a portion of a loan earlier than its due date. It allows them to reduce the total accrued interest by shortening the load length, thereby saving money.

A prepayment penalty essentially prohibits this strategy. It’s a fee that lenders would charge the borrower for prepayments. Unfortunately, it applies to many loan types, including work van loans. However, it may not be as detrimental if you don’t plan on paying your loan early anyway, but if you do, it can be a nuisance. The good news is not all lenders will have prepayment penalties. With that in mind, consider this aspect when choosing a lender.

3. There’s Typically A Minimum Requirement For Monthly Revenue

To take out a personal car loan, your monthly income must exceed the minimum requirement, which often ranges from USD$1,000 to USD$2,000 before taxes. In the same way, to take out a work van loan, your business must meet the minimum requirement for monthly revenue. Of course, it’s higher than the minimum monthly income requirement, which may range from USD$5,000 to USD$10,000.

4. Your Business Must Be Several Months/Years Old

One of the requirements that business owners often overlook is the minimum time in business. It requires borrowers to have been running the business for several months so they can take out work van loans, or any commercial vehicle loan, for that matter. It’s a requirement that prevents people from exploiting the fact that they can officially open a business just as quickly as they can close it. Business loans have better terms than personal loans, so it’s not unusual.

The minimum time in business will vary from lender to lender, so you may have to look into it yourself. However, for your reference, the requirement ranges from three months to two years.

5. A Default On Work Van Loans May Not Affect Your Personal Credit Score

Defaulting on loan payments means you can no longer make the monthly payments. Usually, the lender will repossess the van, and your personal credit score will take a huge hit, affecting your chances of taking out a loan in the future. However, with work van loans, if you didn’t make a personal guarantee that you’d pay the loan if the business defaults, your credit score won’t take a hit. It’ll only affect your business credit history.

Summing It Up

Though work van loans may seem like the perfect solution for your business’ financial troubles, you mustn’t jump right into getting one. You may think you know everything about car loans, but work van loans are different. The process, its requirements, and penalties may catch you off guard, which may cause you to make bad decisions. With this guide, that should no longer happen.

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