Purchasing a passenger commercial vehicle such as a bus, cab, or tourist taxi for a transport business involves heavy financing. Repayment options offered by lending institutions should be an important consideration when taking out a loan.
Flexible repayment options would help you manage the cash flow during your transport business's ups and downs. This article walks you through the various repayment options for passenger commercial vehicle loans in India.
An Overview of Passenger Commercial Vehicle Loans
Passenger commercial vehicles such as buses, cabs, and tourist taxis are an integral part of transport businesses. However, these vehicles usually have very high ticket sizes, ranging from ₹10-50 lakhs, and therefore, they require loans to purchase.
Banks and Non-banking Financial Companies (NBFCs) offer loans to help purchase new and old passenger commercial vehicles. The loan amount varies depending on the cost of the vehicle the applicant intends to buy and the applicant's capacity to repay the loan amount. The interest rate typically starts at 10% per annum, but can vary based on the applicant’s credit score, income stability, etc.
What Is Loan Repayment?
Loan repayment refers to the periodic payment of loan principal and interest as Equated Monthly Instalments (EMIs) over the loan tenure until closure. Traditionally, loans had fixed EMIs with equal principal and interest components. But, of late, financial institutions offer various flexible repayment options to suit the applicant's cash flows.
Repayment Options for Passenger Commercial Vehicle Loans
Financial institutions offer several repayment structures designed to suit different business needs. Here are some potentially best repayment options for passenger commercial vehicle loans:
Regular/Fixed EMI Repayment
- Regular fixed EMI payment is one of the most common repayment options.
- It involves paying a fixed monthly instalment throughout the loan tenure, ensuring a consistent repayment schedule.
- This option suits businesses with stable cash flows, as it offers predictable monthly payments and simplifies financial planning.
EMI Moratorium
- An EMI moratorium is a grace period during which applicants pay only the interest on the loan without repaying the principal amount.
- This option helps new businesses manage their financial burdens during the initial phase of their operations.
- The moratorium period is typically offered for up to 5 years.
Note: Moratorium terms vary by financial institution; it is advisable that you check specific terms before applying.
Pre-EMI Interest
- In this repayment option, you just have to pay the interest on the loan amount until the vehicle is operational.
- This is common for businesses to wait for the vehicle to generate income.
- This is usually suitable for large fleet purchases.
Fixed-Term Loans
- Fixed-term loans come with a fixed tenure and a consistent EMI amount throughout the loan period.
- This option usually provides a clear repayment schedule, making it easier for businesses to plan their finances.
- It best suits businesses with a steady cash flow, offering stable and predictable monthly payments.
Benefits of Flexible Repayment Options for Passenger Commercial Vehicle Loans
Flexible repayment options for passenger commercial vehicle loans offer several advantages, including:
- Improved Cash Flow Management: Tailored repayment structures help align payments with business cash flow cycles.
- Easier Budgeting with Predictable Payments: Fixed EMI plans simplify financial planning.
- Opportunity for Early Loan Closure with Minimal Penalties: Some financial institutions offer low or no prepayment charges, enabling you to clear the loan early.
Note: Prepayment charges depend on the financial institution. Confirm before finalising.
- Increased Flexibility to Upgrade or Expand the Vehicle Fleet: With structured repayments, businesses can manage their finances better, enabling future investments.
Factors Affecting Repayment Options for Passenger Commercial Vehicle Loans
Financial institutions assess several factors before offering flexible repayment options:
Creditworthiness and Its Impact on Loan Terms
- A high credit score increases the chances of getting favourable repayment options.
- Financial institutions assess previous loan repayments and business credit history.
Business Revenue Projections and Financial History
- Strong financial records and revenue projections improve the chances of securing customised repayment options.
- Some financial institutions may ask for audited balance sheets or bank statements.
Vehicle Type and Loan Amount Considerations
- Loan terms may vary depending on whether you are purchasing a minibus, taxi, or luxury coach.
- Higher loan amounts may offer more repayment flexibility.
How to Choose the Most Suitable Repayment Option
Selecting the right loan provider is crucial for getting the best repayment options for passenger commercial vehicle loans. For instance, NBFCs such as Shriram Finance offer several flexible repayment options for passenger commercial vehicle finance.
Here’s how to choose the best repayment options for passenger commercial vehicle loan:
1. Assessing Business Needs
- Determine your cash flow pattern and choose a repayment plan that matches your revenue cycles.
- Decide if you prefer fixed or variable EMIs based on business forecasts.
2. Comparing Interest Rates and Fees
- Compare rates from multiple loan providers.
- Check for hidden charges, processing fees, and foreclosure penalties.
Note: Interest rates and fees vary; always check the latest terms.
3. Evaluating Customer Service and Support
- Choose a financial institution known for transparent terms and responsive customer service.
- Check for digital facilities like online EMI calculators, loan account management, and easy payment options.
The Bottom Line
Passenger commercial vehicle financing is a significant investment. Opt for loan providers delivering flexible repayment to align with the seasonality of the transport business by analysing needs and comparing interest rates.
Options like step-up/down payments, moratorium periods and pre-EMI payments help manage cash flows better. Ensure all aspects suit your transport business nature for financing success.
