A truck loan payout is a term for the lump sum payment which may be a balloon, residual or buyback, which is due in full at the end of the finance term. By finalising this payment, the operator then has the complete, unencumbered ownership of the vehicle. These payouts may be significant amounts especially with large value vehicles and loans, and consideration should be taken to the different options available to make the payment.
One such option is through refinancing with a new loan, but other alternatives are available. We cover off on the options and opportunities, how the payout impacts the loan and when planning should commence to finalise the payout.
What is a truck loan payout?
The final payout can be considered in this context as the amount due on a loan after the final repayment is made. With Chattel Mortgage and Commercial Hire Purchase this would be the balloon payment. A balloon is a percentage of the loan which is set aside for payment after the final monthly payment is made. Balloons may be negotiated with lenders.
With Lease, the payout would be for the residual. Residuals are the expected value of an asset at the end of a finance term and based on ATO schedules. With Rent-to-Own finance, at the end of the term, the operator can negotiate a buyback with the lender to take ownership of the vehicle.
A payout may also refer to the amount outstanding on a loan at a point part-way through the finance term. Payment of this amount would be required to be made when the vehicle is sold or the loan refinanced. The amount would include any outstanding monthly payments, any balloon or residual plus interest due and lender charges.
Truck Loan Payout with Trade-in or Sale
When a vehicle under finance is sold, all monies owed to the lender must be finalised. Where the vehicle is sold via private or dealer sale, the operator may use the funds to finalise the loan. Where a dealer is involved, it is in their interest to ensure the vehicle is not under finance so they can put it on their lot for resale. Instead of giving the funds to the operator, arrangements are usually made for the dealer to direct the necessary funds to the lender. Where more is available, that is directed to the operator.
Where a vehicle is traded in with a dealer, the trade-in value is usually deducted from the purchase price of the new vehicle. The operator is responsible for finalising any finance outstanding on the trade-in, usually before the transaction can be finalised. Subject to dealer agreement, instead of deducting the trade-in value from the new purchase, the operator may request all or the required part of the value be directed to the lender to finalise outstanding payments.
With the trade-in not deducted from the new vehicle price, the operator may apply for finance on the full price of the new vehicle.
Refinancing Truck Loan Payout
While final payouts may be made with available business cash funds, it is quite common for business owners to refinance these amounts. Balloons, residuals and buybacks can be refinanced with a new loan arrangement. The new loan can be with the same type of finance as the current loan – Chattel Mortgage, Lease, Rent-to-Own or Commercial Hire Purchase, or with a different credit facility.
To be approved for these secured format loans, the vehicle must be considered acceptable loan collateral. The vehicle is treated as used and the interest rate, and loan terms and conditions based on Used Truck Loans.
Where the vehicle is not considered suitable collateral for asset finance, operators may consider an Unsecured Business Loan. Rates are higher than asset finance rates but unsecured loans can offer highly workable solutions.
When to start planning truck loan payout?
Astute operators can start planning how they are going to finalise their vehicle finance at the time they apply for their initial loan. Yes, that could be 7 years before it is due, but forward planning may offer significant benefits.
Key to meeting the amount due with a trade-in or the proceeds from resale can be the value of the truck being in line with the amount outstanding. The same applies when refinancing as the primary objective of refinancing is to include the full amount due.
Operators can structure their loan in line with the projected value of the vehicle at the end of the term. This may involve requesting a balloon in line with that value. When the balloon is due for payment, the vehicle sale proceeds, or refinancing should cover the amount due. Where a lender does not value the vehicle at the amount required or where the sale price is less than the outstanding amount, the operator is responsible for meeting the balance.
It can be advisable to start considering your payout options a month before the amount is due to ensure you have your refinancing or sale proceeds ready to make the payment when due.
If you have a truck loan payout coming up, contact Jade Truck Loans on 1300 000 003 to discuss your refinance options.
DISCLAIMER: THIS INFORMATION IS ISSUED PURELY FOR THE PURPOSE OF GENERAL INFORMATION PROVISION. IT IS NOT TO BE TAKEN AS THE ONLY SOURCE OF INFORMATION FOR BASING FINANCIAL DECISION-MAKING. THOSE REQUIRING FINANCIAL GUIDANCE AND ADVICE SHOULD CONSULT WITH THEIR FINANCIAL CONSULTANT OR ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY MISREPRESENTATION OF POLICIES, DATA OR ERRORS IN THIS CONTENT.
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