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Is It Possible to Refinance a Commercial Auto Loan?

How to Refinance a Commercial Auto Loan
Austin Kilham
Austin KilhamUpdated April 8, 2023
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A commercial auto loan is a loan you take out to buy a vehicle for your business. You pay the loan back in monthly installments with interest. It’s possible to refinance a commercial auto loan. In fact, refinancing is something you might want to consider if interest rates drop, your financial situation improves, or you need to make your monthly payments more manageable. Here’s what you need to know to refinance a business auto loan.

How Does Refinancing Commercial Auto Loans Work?

First, it’s a good idea to check to see what is the principal balance on your current auto 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. Here’s an auto loan refinance tip: By lengthening the term of your loan with business 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.How soon can you refinance an auto loan after taking out the initial loan? Almost immediately. You may want to consider 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 seize 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’ 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. 

Commercial Auto Loan Terms

The term of a car loan is the number of months over which you agree to repay your commercial auto loan. Generally, commercial lenders offer loans with terms up to 72 months. 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. 

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.  

Registration or Title Transfer Fees

And depending on where you live, you may need to pay to re-register your car when you refinance. Or, you may be required to pay a title transfer fee when your auto title moves from your old lender to your new one. 

Refinance a Commercial Auto Loan vs Personal Auto Loan

The process of commercial auto loan refinance 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. 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.

The Takeaway

A commercial auto loan provides financing for a vehicle you use for your business. Refinancing that loan to get a lower interest rate or smaller monthly payments, could help you save money, depending on your situation.If you’re interested in auto loan refinancing, Lantern can help you compare rates and terms from multiple lenders all at once. Having a range of options can help you choose the auto loan refinance offer that’s best for you.

Frequently Asked Questions

Can I refinance a commercial auto loan?
Does Lantern allow you to refinance a commercial auto loan?
How much does it cost to refinance a commercial auto loan?
Photo credit: iStock/LPETTET

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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