Rob Misheloff
We talk to a lot of folks about tractor financing.
Your first question is always...
How Much Are Tractor Financing Rates?
Tractor financing rates start at 5% per year. Financing rates for tractors can go up from there based on your credit, time in business, and other factors. Startup businesses or those with very poor credit may see much higher rates.
Here's what really matters...
How much are the monthly payments on a tractor?
(Since profit is revenue minus costs... the most important thing for a business is how much that tractor is going to make you after the payments.... right?)
Most resources on the internet don't really tell you the costs, or they tell you fake costs that only apply to the top 1% of people who contact them.
Let's go over what real rates are going to be, based on different situations, ones that we come across all the time.
Want to hear what your real costs will be?
Monthly payments on a tractor loan are based on several things:
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Where you get the loan
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Your credit
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How long you have been in business
Let's go over these items in detail...
Tractor Loan Costs - Dealers vs Leasing Companies
Many times, your best option will be financing through a dealer, assuming the following:
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You're buying new or almost-new equipment
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You have good credit (700+)
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You've been in business for at least 2 years
If all three of the above are true, many dealers, such as Kubota, offer zero percent financing - which of course nobody else can compete with. Your credit has to be very good - since the dealer loses money by offering the financing they need to know they're going to be paid back.
How Much are Used Tractor Loan Rates?
Used tractors are usually not eligible for 0% loan offers at dealerships. Many dealer programs do consider used tractors for customers with good credit profiles with rates going from 5% on up. It does depend on the age, however. Very old tractors will often need to be financed outside the dealership.
If you're not buying brand new equipment, have thin or low credit, or haven't been in business for very long, you'll likely end up using an equipment leasing broker.
Going through an equipment leasing broker will cost more than dealer financing. How much higher depends on your situation - we'll go over this shortly.
Tractor Financing with Bad Credit (or Good Credit)
Banks and lending companies use math to analyze who to lend money to. Want to know who pays their loans most often?
If you answered, "people with good credit..." you'd be 100% correct.
Now... that doesn't mean you need perfect credit to finance a tractor.
What Credit Score is Needed to Finance a Tractor?
The best tractor financing programs require credit scores over 680 but there are programs in the marketplace for most credit profiles. Often, tractors can be financed with FICO scores all the way down to 500 based on cash flow, collateral, or other factors.
What it does mean is that the more challenging your credit is, the higher the payment will have to be to offset any additional risk.
With that being said, what are the payments you could expect with good, ok, or bad credit? Let's look at a $25,000 tractor, and assume you're going to lease over 5 years. What would your payments likely be?
Monthly Payments on a $25,000 Tractor
| Credit | Time in Business | Estimated Payments |
|---|---|---|
| Good | 2+ years | $525 - $575 |
| Good | Startup | $600 - $675 |
| OK | 2+ years | $600 - $650 |
| OK | Startup | $600 - $725 |
| Bad | 2+ years | $650 - $750+ |
| Bad | Startup | $750+ |
What holds many people up is the total cost of financing. You can make total financing costs lower by having a shorter term. Often a 36-month term will have payments slightly higher but may save a substantial amount in finance charges as compared to a 60-month term.
New Business Tractor Financing
If you're new in business (under 2 years), ignore the numbers we just went over.
As a new business you're in a "special" risk category.
Special means a little harder to get financing for, as the risk of roughly half of small businesses not making it in their first 5 years has to be factored into the financing decision.
This means it's harder to qualify for financing if you're new. This is particularly true in 2020 with the Covid-19 pandemic. Lenders are looking just a little more carefully, and this is particularly true for startups.
With that said, startups can expect to pay higher rates if they are approved. Referring to the payments above, the best credit customers may expect a payment of around $600, which marginal credit customers may experience payments closer to $800.
Yes, those are high payments for a $25,000 loan. It's reality though.
Are you ready to get your tractor financed? Give us a call at (866) 631-9996 or click on the picture below to get started.
