Interest Rates Are Going Up. Why You Should Secure Commercial Vehicle Financing Now!
What is going on with interest rates and truck financing? Everywhere we turn, every business channel we turn on, everyone’s talking about the rising interest rates. This definitely affects growing your fleet and financing equipment for your business. We wanted to discuss why interest rates continue rising and how that will affect things like commercial truck financing. When is the right time to look for semi-truck financing, vehicle loans for trucks, and equipment?
Commercial Truck Interest Rates Will Continue To Move Higher.
It’s important to understand why interest rates are continuing to rise. Inflation is the reason for it. We have an 8% plus inflation rate. It means the cost of everything continues to go up. And in an effort to slow down inflation and eventually bring it down, the Federal Reserve raises the cost of money. If money becomes more expensive, demand will slow down; therefore, inflation will slow down, and eventually, we can get this thing normalized. The Fed has been crystal clear that they want to have the cost of money about the same as the inflation rate. A normal inflation rate is somewhere between 2% and 3%. But in order to bring inflation from 8% down to 2-3%, the interest rate has to continue to move higher.
Eventually, we can get a normal inflation rate and the cost of money. We are not there yet. We’re still trying to figure it out. The Fed is still trying to figure it out. So far in 2022, the Fed has raised rates five times and said they would raise them two more times. The Fed will meet in November, and the Fed will meet in December. They’ve already said they will have a 0.75% rate increase in the November meeting. And it is expected that they will have at least a 0.5% increase in the December meeting. So, what does that mean? It means interest rates will go up at least another 1.25%. Now let’s correlate this to the equipment financing world. If you want to buy a piece of equipment and borrow money for a commercial fleet loan, go for it, that interest rate continues to rise and isn’t rising slowly.
2022 Fed Rate Hikes
The Time Is Now To Borrow Money For Your Commercial Truck Financing Needs!
It’s rising faster than I have ever experienced in 27 years of owning CFF. I’ve never seen vehicle finance rates jump like this. If you take a look at the graphic, you’ll see the graph of what the five-year treasury rates have looked like in 2022. When we started this year, five-year treasury rates were 1.35%. And as of October 28th, they are 4.19%, a 2.89% increase in less than 12 months.
5 Year Treasury Rate
Now, what does that translate to the commercial vehicle financing world?
In other words, how much extra are you paying? Let’s take a look at a truck financing example.
The semi truck financing example I’m using is on a $150,000 semi truck for a 60-month five-year term with a zero down payment. If you look at Q1, the first three months of 2022, we had an average interest rate of around 6% to the customer, driving a monthly payment of $2,899 for that semi-truck financing deal.
Total payments for borrowing $150,000 for a semi-truck over five years, at a 6% rate, you would pay back $173,995 with a total interest charge of $23,995. That’s what it would’ve cost you in Q1 to finance that semi-truck. Today, in Q4 2022, that 6% rate is now a 9.5% rate for the same semi truck financing deal. The monthly payment is $3,150. The total payments are now $189,016 with interest rate charges of $39,016. So if you take the total interest charges of $39,000 and subtract out the previous 6% interest charges of $24,000, you’re now paying the difference. That delta is the cost of financing. It’s a big jump. It’s not an additional profit center for a Commercial Fleet. The cost of the product and the money has gone up. It has to be passed on to the customer. It’s the same thing that must be done in your business.
You have an 8% inflation rate. Everything involved in your business has gone up, including the cost of commercial vehicle equipment financing, so you have to pass those costs on. The question you need to be asking, the question I want to bring up to you today, is the following.
When do you buy? When Should You Finance Your Next Commercial Vehicle?
The cheap is over. The good news is that truck prices are starting to come down. The good news is that the Fed has already told us they will raise at least another 1.25%.
You Need To Finance Now. Get The Truck Loan Now!
You already know that the truck price is coming down. That offsets a little of the impact of the truck financing increase, and you know that interest rates will increase. Because the Fed has told everyone that they’re going to continue to raise interest rates until inflation comes down, and they have said at least another 1.25% this year alone, I would expect at least another half a point, maybe three-quarters of a point in Q1 2023 that drives almost a 2% interest rate increase still yet to come.
Projected Interest Rates For Financing A Truck Or Equipment
Projected Interest Rates For Q1 2023 – Commercial truck financing rates will increase!
So, let’s look at what that’s going to look like. You can see what Q1 looked like in the graphic. You can see what Q4 looks like. Here is my projection for what Q1 2023 is going to look like. If interest rates go up another 1.5 to 1.75, or maybe 2 points, it will drive the cost of borrowing to 11%.
Eleven percent interest will take your monthly payment to $3,261. Your Total Payment amount will be $195,681; total interest charges will be $45,681. The total cost will be $6,000 more if you wait. That’s the point. If you know that the interest rate is going up, which the Fed has already told us it will, the cost to do business will also go up.
If we knew there was a discount available today and it would be more expensive in the future, today is the right time to buy.
That’s the message I’m trying to get across today. If you waited in Q1 and didn’t buy until Q4, it’s costing you an extra $250 a month. The interest is now $39,000 instead of $24,000. It costs you an additional $15,000. Let’s not make that mistake again. If you are in the market to buy and believe you have the business and the demand, then it’s the right decision for your business to buy now in Q4.
I’m an action step guy. I love data and information, but I don’t like any of it unless we have an action step or a plan to put it into place.
Seven Steps To Fight Against A Recession For Business Owners!
Here are 7-steps that we’re talking about in our company that might benefit your company today.
1. Don’t take part in the recession.
Draw a line in the sand and say, Our company isn’t going backward; we’re going forward. So even if it’s a little harder to go forward today because we’re in a slowing economy, in a more expensive inflationary environment, we will not take part in the recession. Our company is not going backward. We’re going forward.
2. Plan on working harder.
That’s the way it goes. You have to turn over more rocks. You have to find more opportunities. You have to find new programs; you have to find new ways to make it. And if it means that you know you haven’t been working as hard as you had in the early days, you must recommit, and you gotta plan on working harder in a recession.
3. Work on your mind.
I’m a huge mindset guy. So, who are you watching? Whom are you listening to? Whom are you reading? Who are you getting your information from? Please tell me you’re still building your business and want to go to another level. To do that, we as individuals have to improve. We have to mature; we have to get better. So I challenge you in a slowing economy, whom are you watching, whom are you reading, whom are you listening to?
4. Compartmentalize all this worry and potential fear through goal setting.
Set daily action goals. Wake up in the morning and say, I’m going to achieve this. When I achieve this, I will turn the spigot off and go home, and I will be a good husband. I’m going to be a good father. I’m going to be a good wife. I’m going to be a good spouse. I’m going to be a good significant other. I’m going to be a good neighbor. I’m going to be a good employer. And I will not be consumed by what the media wants us to believe. Is the world coming to an end? The world is not coming to an end. I’ve been in business for 27 years. We’ve been through four recessionary cycles, and we came out okay. The world kept spinning, and ice cream was still delivered to the stores and available in the freezers. The world is not going to end. It’s not going to crash. It’s not going to be; It’s not going to be Armageddon. We’re all going to be okay. To benefit from that truth, compartmentalize your day by goal-setting through a recession.
Figure out what you want to achieve. Go into the marketplace and achieve it. Then close it down for the night and go be great doing something else.
5. Be financially sound.
Refrain from making silly decisions. Only buy stuff you need. Tighten the belt a little bit. Be cautious. But, when I say be financially sound, most people think it means cutting all spending. That is not what I’m saying. Make smart business decisions. If buying a new piece of equipment makes financial sense, buy it now. If it makes sense to go buy your own building, buy it now. If it makes sense to buy out a competitor, go buy it now. Be financially sound.
6. Stay off media. The media sells fear.
The news channels are not here to make us business owners feel good; they are here to scare us. Stop watching some of that silliness. Stop watching Fox, CNN, CNBC, etc. I don’t watch them anymore because they never make me feel good. When I watch them, they make me feel worried. And when I get worried, I put more pressure on my business, myself, my spouse, and my kids. I put more pressure on everything. That’s how they want us to behave. The way we should behave in a recessionary economic slowdown is to keep moving forward, compartmentalize our worry, and then find other reasons to stay happy with who we are, what we’ve achieved, and where we’re going.
7. We have to build stronger client relationships.
This last one is a proper business step in a slowing economic cycle. We have to go out and see our clients more. We need to knock on more doors, talk to more people, and ask for the business. We tend not to do that when times are good and the phone’s ringing off the hook. And then, when we have to do it to pay the bills, it feels very disingenuous, right? It feels like, “I know I didn’t care about you when things were good, but now that things aren’t so good, I really need you.” You need your clients throughout the entire process. So build stronger client relationships. If you’re finding freight on load boards right now, try to build direct customer relationships so you’re not a victim to the load boards.
You’d have a contract with a customer who appreciates you, stabilizes your revenue, levels out your expenses, and guarantees you a portion of the profit every month. Go build stronger relationships.
7 Steps To Fight Against A Recession
You Can Scale Your Trucking Business
As stated, I’ve been through four economic slowdowns and recessions in 27 years in business. We’ve survived them all. You will survive too. Some people are just on the ship, watching it crash on the shore. But those of us who see it, those who take action, those who are financially sound, we make smart business decisions. Those of us that take good care of our clients keep moving forward, and we don’t let our brains get caught in the fear that the media constantly tries to push on us; we will prevail, and you will prevail. That’s the state of interest rates as we see it at Commercial Fleet Financing.
I hope this was helpful. Give our office a call. Check out our website at www.commercialfleetfinancing.com. We’d love to hear from you and see how we can assist with your next commercial vehicle loan.
About Commercial Fleet Financing, Inc.:
At Commercial Fleet Financing (CFF), we have specialized in commercial vehicle financing and giving smart advice to fleet owners and owner-operators in the transportation, moving, towing, and construction industries for more than two decades. With CFF, finding the right financing solutions is a phone call away, and most borrowers secure commercial vehicle financing with ease. To talk directly with one of our commercial truck financing pros and get started with credit approval in as little as two hours, CFF’s phone number is 469-965-1629.