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.