4 Reasons Why it Makes Sense to Refinance Your Business Fleet
by Arina Smith Small Business 15 May 2018
Whether your business fleet consists of your car only or you run a huge taxi service, there are times when it makes sense to refinance the existing loans you have on your vehicles. It doesn’t make sense to refinance a loan “just because” and the reason why is simple: you’re extending the loan and, as such, paying more interest. Don’t put yourself into additional debt unless it’s absolutely necessary, but do consider refinancing for the following four reasons no matter your situation.
1. You Can Get a Better Rate :
You may have gone to drastic measures to finance your vehicles in the first place. Perhaps you were just starting out and hadn’t established your creditworthiness. Consequently, you had to settle for high-interest rates on the vehicle loans at the time of purchase. In the meantime, you’ve established a solid business credit profile and interest rates on auto loans have gone down. If you aren’t upside-down in your car loans, consider refinancing to reduce your overall interest rate. Do the math to make sure this will save you money in the end, but in most cases, it will if you can get a low enough rate.
2. The Cars Are Old :
You might also want to refinance your vehicle fleet if the cars are aging. Why pay an exorbitant interest rate on a long-term contract on a vehicle or vehicles that are losing their value over time? If you can reduce the loan term through the refinance, you might save money and be able to sell the older car or cars quicker. This works well if you need to turn around some older vehicles in your fleet. Refinance them for a shorter term, get them paid off more quickly, and then get them out the door. Again, do the math to confirm the option is a fruitful one, and then move forward accordingly.
3. You’re Doing Well :
Your business is booming. Congratulations! Now, take some of those profits you earn and put them back into your company. One way to get the most out of your vehicle contracts is pay them off early (provided you don’t have an early termination fee) or to refinance them for the reasons discussed above. For example, imagine you have a fleet of 10 business cars for your sales reps. They have exceeded their sales goals. Take a chunk of the profits and refinance the fleet to lower the payments and shorten the contract terms. You’ll earn the initial reinvestment back in reduced fleet expenses.
4. You Might Get Dinged With a Higher Rate :
The first reason discussed above painted a scenario that every person loves and that is interest rates going down. In some cases, however, interest rates rise, and if you have variable rates on your car loans, you need to refinance to get a fixed loan. Keep an eye on the economy and interest rate reports in the financial media. Also stay in touch with your lender to ensure you know when interest on your loans may rise. If you get word that they will, talk with your lender about refinancing your vehicles. If your lender isn’t willing to do so, shop for another lender to get out of rising interest rates.
Bear in mind this won’t be a good option if you’re upside-down in your auto loans. You’ll have to finance too much and the lower interest rate might not make that much of a difference. Nonetheless, variable interest rates can turn on you when you least expect, so when the time comes that it makes sense, you might be wise to refinance your business vehicles into fixed contracts so that budget line on your financials remains sound. Don’t take chances with your business credit. Auto loans are reflected on the reports and can affect your overall scores significantly.
It’s important to remain educated and on top of all loans. If you don’t understand how your vehicle loans are affecting your business’ bottom line, you might find yourself in a lurch. Understand your car loan terms and always keep an eye out for ways to reduce your interest rates and loan durations. The more money you save on your business fleet, the more money you can put back into your venture, and refinancing vehicle loans is one way to reduce your expenses and increase your bottom line.
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