Refinancing a commercial auto loan can be a smart financial move for business owners looking to reduce costs or improve cash flow. Whether you’re aiming to secure a lower interest rate, extend your loan term, or adjust your monthly payments, refinancing offers the flexibility to better align your financing with your current business needs.
Keep reading to learn the steps to refinance a commercial car loan, key considerations to keep in mind, and how to determine if it’s the right time for your business to make the switch.
Key Points
• Refinancing a commercial auto loan involves replacing your existing loan with a new one, potentially offering better terms.
• A commercial auto loan refinance can lead to reduced monthly payments, especially if interest rates have dropped or your business’s financial situation has improved.
• Extending the loan term can decrease monthly payments but may increase the total interest paid over time.
• Lenders assess the financial health and credit history of your business when determining interest rates. Businesses with strong credit histories and financials are more likely to secure lower interest rates.
• Be aware of potential fees associated with refinancing, such as prepayment penalties on the existing loan, application fees for the new loan, and possible registration or title transfer fees.
How Does Refinancing Commercial Auto Loans Work?
First, it’s a good idea to check to see what the principal balance is on your current car loan. That’s because when you refinance a commercial auto loan, you pay off your old loan with a new loan. Ideally, the new loan will have a lower interest rate or more manageable terms.
By lengthening the term of your loan with an auto refinance, you could lower the amount of your monthly payments. However, because you’ll be repaying the loan longer, you’ll end up paying more in total interest, which increases the cost of the loan. By shortening your loan term, you can pay off your loan faster. In that case, your monthly payments will increase, but you’ll ultimately pay less interest.
You can refinance your car loan almost immediately after taking out your initial loan. You may want to consider a business auto loan refinance when interest rates drop or your financial situation improves, potentially qualifying you for a loan with lower interest. Reducing your interest rate will lower the overall cost of your loan.
Commercial Auto Loans Without a Personal Guarantee
A personal guarantee may be required for a regular business loan because the loan is unsecured and doesn’t require collateral. There’s nothing the lender can do to recoup their losses if you fail to repay the loan, so they may ask you to sign a personal guarantee that promises you’ll pay off the debt personally, with your own money, if your business fails.
But a personal guarantee may not be required for commercial auto loans when you’re using a car for business. A commercial auto loan is secured, and your vehicle is the collateral. If you fail to make payments, the lender can repossess the vehicle. Because of that, commercial auto loan lenders may not ask you to sign a personal guarantee.
Commercial Auto Loan Interest Rates
The interest rate on your commercial auto loan is the amount a lender charges you for borrowing money. The interest rate you’re offered is typically based on the financial health of your business and your business’s credit history. The lowest interest rates typically go to businesses with a strong history of paying back loans on time.
If your business does not have a long credit history, your lender may ask to look at your personal credit history and credit score to help determine the interest rate on the loan.
One way to potentially get a lower interest rate is to make a larger down payment on the car loan. That reduces the risk the lender is taking on, so they might offer you a lower rate.
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Commercial Auto Loan Terms
Commercial auto loan terms can vary widely depending on the lender, the creditworthiness of the business, and the type of vehicle being financed. Typically, loan terms range from 24 to 72 months.
Some lenders may offer flexible repayment schedules, while others require fixed monthly payments. Understanding the specific terms — such as interest rates, fees, and prepayment penalties — can help you choose a loan structure that supports your business’s financial goals and cash flow needs.
When you refinance your commercial auto loan, you have the opportunity to change your loan term.
Typical Cost to Refinance a Commercial Auto Loan
So, how much does it cost to refinance a car? With commercial auto loan refinance, you may face a number of fees, including:
Prepayment Penalty
Some lenders charge a prepayment penalty for paying off loans early. Check your loan terms to see if you’ll be penalized when you refinance your loan.
Application Fee
In addition, lenders often charge transaction fees, such as processing or application fees for your new loan. Negotiate with your lender to reduce these fees or have them waived entirely.
Title Transfer Fees
When you refinance your car, you may need to pay a title transfer or lien recording fee, depending on your state’s requirements. This fee covers updating the vehicle title to reflect the new lender as the lienholder. It’s usually a small administrative cost — often between $5 and $50.
Refinance a Commercial Auto Loan vs Personal Auto Loan
The procedure to refinance commercial car loan is similar to refinancing a personal auto loan. However, when you apply for refinancing, lenders may want to see information about your business, including your business plan, annual net profit, annual gross sales, outstanding obligations, tax ID, and a recent business tax return.
Alternatives to Refinancing Commercial Auto Loans
If you’re looking for ways to pay off your loan sooner, and you’d rather not refinance your commercial auto loan, there are other options to consider.
Paying Off the Auto Loan in Full
You could repay the entire loan early as an alternative to refinancing. Be sure to look into whether you will owe any prepayment penalties, and if so, whether these penalties will make early repayment too expensive.
Refinance a Commercial Auto Loan to a Personal Auto Loan
Another option is to refinance your business auto loan to a personal auto loan. When refinancing an existing auto loan, in addition to looking at your personal information, including your income, credit score, and credit history, lenders may want to see information about your business, such as annual net profit and gross sales, and outstanding debt obligations.
One of the questions to ask when refinancing a car loan is what documentation and information you need to provide when you apply for the loan.
With refinancing, you may be able to get a lower interest rate or more favorable terms, so explore your options.
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The Takeaway
Refinancing a commercial auto loan can be a strategic move to improve your business’s financial flexibility, lower monthly payments, or secure a better interest rate. By understanding your current loan terms, evaluating your financial health, and comparing offers from multiple lenders, you can find a refinancing solution that better suits your business needs.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
Can I refinance a commercial auto loan?
Yes, it’s possible to refinance a commercial auto loan. Doing so could be beneficial if you can qualify for a lower interest rate or you need to adjust your loan term.
Why would a business refinance a commercial auto loan?
Businesses refinance to save money on interest, lower monthly payments, or adjust the loan term. It can also be a strategic move to consolidate debt or remove a cosigner from the original loan.
How much does it cost to refinance a commercial auto loan?
The cost of refinancing a commercial auto loan will depend on the fees charged by your lenders. You may owe a prepayment penalty for paying off your old loan, or transaction fees for your new loan. You might also need to pay fees to transfer the car’s title or re-register the vehicle, depending on where you live.
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