There is a general perception that commercial vehicle loan is extended to only those businesses that deal in vehicle related business like logistics and transportation. But the truth is that any venture which requires use of vehicles to be used for business purpose can avail this loan. Simple example is a restaurant that provides home delivery would need bikes and small vans to make such deliveries. They may also need larger vehicle where they are providing catering services for a bigger fare.
In this section, we will discuss ten terms that will help you understand the terms and conditions of your loan document.
These vehicles are used for business purposes including ferrying passengers and transportation of goods. In other words, any vehicles used for purposes other than personal can be counted as commercial vehicle. Most of the lenders extend these loans against both new and used vehicles. Standard definition of commercial vehicle includes the following, however the same may differ from lender to lender:-
- Trucks- Heavy, Customised, medium, and small
- Auto Rickshaws
- Cars to be used as taxi
Commercial vehicle loan application may require borrower to provide name and details of a person who would repay the amount of loan in case the original borrower fails to repay the same. Since such other person gives guarantee to repay the loan, he or she is referred to as guarantor. Guarantor’s signatures are also required on the application and subsequent forms. Guarantor is like an additional security and assurance for loan repayment.
Sometimes a borrower may have adequate cash flows to repay the loan in full before the loan term is over. Such prepayment however may attract certain penalty since prepayment leads to loss of interest for the lender. To discourage this practice, lenders usually levy a prepayment charge which is very clearly mentioned in the loan document.
Loan tenure is the total number of years for which the loan is granted and needs to be repaid. Commercial vehicle loan is in nature of term loan which can range from 1-4 years and in cases of vehicles up to 7 years too. Some lenders also extend working capital loans and overdraft to bridge the gap between cash flow and expenses under this loan category.
These are the documents that need to be submitted for availing the loan. Apart from completely filled loan application following standard documents that are included here are:-
- Identity and age proof- PAN card, Adhaar card, Voter’s card, ration card, passport etc.
- Recent photographs
- Residence proof: PAN card, Adhaar card, Voter’s card, ration card, passport, electricity bill, telephone bill, bank passbook etc;
- Income proof: Income tax return for past year/s, Audited financials etc;
- Existing vehicle ownership proof including vehicle papers;
- Establishment or entity proof: Partnership agreement, Memorandum and articles of association etc;
- Valuation report in case of used vehicle;
- Repayment track record, if existing;
- Proforma invoice from dealer or manufacturer;
Top up loans
A Top up loan is given over and above the actual loan amount to meet contingencies. It is given somewhere later in the loan tenure after the repayment track record and capability of the borrower is established.
Moratorium is a period during which no repayment of loan is made. This period is like a breather for the borrower and usually is in the range of 60-90 days. Moratorium is part of the total loan tenure.
Refinancing means replacing your old loan with a new one, which has new terms and conditions that are more beneficial for the borrower like lower rate of interests and favourable terms and conditions. Lenders usually give option of refinance to ensure customer loyalty.
Sometimes after availing the loan, a borrower may realise that another lender is extending the same loan but with lower interest rates and more favourable terms and conditions. In such circumstances the borrower can transfer the balance unpaid amount of loan to another lender. In fact the earlier discussed “refinancing” is usually offered by the existing lender to keep the borrower from moving to another lender by balance transfer.
This charge is applicable to only used vehicles where a valuer assesses the value of the vehicle and subsequently the loan amount. This valuation helps in arriving at a fair resale price of the vehicle. Irrespective of the amount the borrower is buying the car for, this valuation amount is taken as benchmark to extend the loan. Many large lending houses have their in-house valuers and do not charge any fees for the purpose.
These were the ten terms that would usually find mention in your loan document. Knowing their meaning is very important to completely understand the terms, conditions and financial implication of your loan.