Financing a passenger commercial vehicle, like a bus, taxi, etc, is a major decision for any business owner or operator in India. Typically, these vehicles require significant capital investment. Since public transportation needs are rising across India, many entrepreneurs and businesses want to provide passenger transport services to serve this demand.
However, the high ticket size of commercial vehicles combined with factors like fluctuating fuel prices, driver salaries and vehicle maintenance costs means financing is crucial. Carefully considering all the passenger commercial vehicle finance factors allows applicants to make informed decisions when seeking loans or credit to purchase and operate passenger commercial vehicles.
What to Consider When Availing Passenger Commercial Vehicle Finance
Below are the passenger commercial vehicle finance factors which you must consider before applying for a loan:
1. Vehicle Type and Cost
The first factor in a passenger commercial vehicle finance application is the type of passenger vehicle needed for the business and its purchase cost. Generally, options include buses, taxis, three-wheelers, and cabs. Cost varies depending on vehicle size, features, and brand.
For example, a 25-seater minibus may cost between ₹10 and ₹25 lakh. Premier luxury buses with amenities can range from ₹40 lakh to over ₹1 crore. Typically, the vehicle investment required is directly proportional to the passenger capacity and features offered.
Fleet size also impacts overall financing needs. Applicants should have reliable data on the vehicles required now and projections for future growth when seeking funding. Banks or Non-banking Financial Companies (NBFCs) usually want to see well-supported estimates before approving large credit amounts.
2. Expected Revenue and Operational Costs
Another vital passenger commercial vehicle finance factor is analysing expected revenues and regular operating expenses. This helps determine the repayment capacity for any loan amounts. Revenue projections will depend on the routes served, target customer segments and pricing models. Also crucial is considering day-to-day costs like fuel, driver salaries, taxes, maintenance, insurance and parking. Realistic estimates are important when applying for financing based on income and expenses.
Generally, loan providers want to see strong viability and healthy Debt Service Coverage Ratios (DSCR) before approving commercial vehicle loans. Hence, detailed financial planning and data help reassure banks or NBFCs and aid business owners in assessing cash flows for repayments.
3. Down Payment Requirements
Typically, banks and NBFCs financing commercial vehicles require a down payment, which varies from one loan provider to another. Applicants should be prepared to pay an initial amount based on the total purchase costs.
In some cases, higher down payments may also secure more favourable interest rates. Hence, applicants should carefully plan their savings or capital resources before selecting vehicles and applying for loans.
4. Credit History and Documentation Requirements
Financial institutions usually evaluate the applicant’s credit history and submit documents as part of the underwriting process. Individual owners usually need to provide proof of identity and address, as well as tax statements and bank account details. Additionally, companies generally have to submit incorporation certificates, ownership history, financial statements and existing credit facilities.
Stable earnings, timely repayments, and clean credit records generally increase the probability of securing finance at affordable rates. Yet, many loan providers may be willing to offer vehicle loans even to new businesses that demonstrate sound financial planning.
5. Interest Rates
Interest expenses also play a major role in determining overall repayment costs, and several NBFCs offer competitive interest rates for passenger commercial vehicle financing. Generally, rates for new passenger commercial vehicles typically start from 10% per annum. Used vehicles often have higher interest rates based on age and loan tenure.
Applicants must compare lending rates between banks and NBFCs before selecting the most cost-effective option. They should also inquire about any processing fees or prepayment charges levied.
6. Repayment Tenure Options
Commercial vehicle loans usually have repayment periods between 1 and 7 years. Shorter durations often require higher regular outflows but reduce total interest costs. Longer tenures provide easier cash flows but accrue more interest expenses. The optimal tenure depends on the applicant’s revenue estimates and expenses.
7. Collateral and Co-applicant Requirements
Many banks or NBFCs ask for collateral like property or fixed deposits when lending for commercial vehicles, especially to new businesses without established cash flows. However, this requirement varies from one financial institution to another.
Additionally, loan providers often require a co-applicant signatory on the loan. The co-applicant is usually expected to have a strong credit record and sufficient income to service the debt obligations. This primarily minimises the financial institution’s risk exposure. Applicants should be prepared to provide eligible collateral and co-signees if needed to increase their chances of approval.
Conclusion
Purchasing passenger commercial vehicles for starting or expanding transport businesses requires significant capital. Carefully examining key passenger commercial vehicle finance factors allows applicants to make prudent financing decisions. Realistic estimates of costs and revenues, along with strong credit records, help secure loans at affordable rates for buying and operating buses, taxis, and cabs profitably.
It is recommended that you plan your finances by considering your specific purchase needs and operational viability when seeking vehicle finance.
