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Tractor financing: here’s what you need to know

If you’re in the market for a tractor, you’ll likely need to finance it. Tractors are expensive, and not many people have the cash on hand to outright buy one. There are two main types of tractor financing: loans and leases. So which is the best option for you? In this article, we’ll help you decide!

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Tractor lease vs tractor loan

Renting and leasing are the two most common tractor financing options. Each option has its own specificities, which we will see below.

Tractor monthly payments 

A monthly payment on tractor financing would be the amount of money you pay each month to pay back your tractor. This amount will vary depending on the tractor you choose and the terms of your loan or leasing.

In leasing, the monthly payment works like a rental, while in lending you have monthly payments that progressively reduce the amount to be repaid.

Tractor ownership

With leasing, it’s the financing company that owns the tractor. The leasing contract may include a purchase option at the end of the deal. The maintenance of the tractor may also be at the expense of the financial institution.

With a loan, you are responsible for ownership and maintenance, both routine and for any possible breakdowns.

tractor leasing

Tractor down payment

A down payment is a sum of money that is paid by a borrower to a lender at the time of purchase. It is typically a percentage of the total cost of the purchase. Down payments are used to reduce the amount of money that must be financed, which in turn reduces the interest payments that must be made over the life of the loan. When it comes to tractor financing, the down payment is often a significant portion of the total cost.

In conclusion, with leasing a down payment isn’t required, while with a loan, the equipment credit approval requires it.

Collateral pledge

A collateral pledge is a legal agreement in which the borrower pledges specific assets to the lender as security for a loan. These assets can be seized by the lender if the borrower defaults on the loan. 

Collateral pledges are one way that lenders can reduce the risk of lending money. By requiring borrowers to pledge assets, lenders can be assured that they will at least recoup some of their losses if the borrower defaults on the loan. 

For loans, depending on your credit and debt capacity, you may need to pledge other assets as collateral before securing financing.

With lease, on the other hand, there is no collateral need since the equipment leased serves as collateral.

Tax implications

With a lease, you can write off the full portion of your lease payments as an expense. Financing equipment through leasing is a great option as lease payments are 100% tax deductible, providing a huge fiscal advantage while helping your business’s cash flow.

On the loan side, you’ll get tax write-offs for the interest you pay on your loan, and because you own the equipment, you’ll amortize it over its expected lifespan. This implies that you’ll claim the annual amortization as a tax deduction according to Canada Revenue Agency’s Capital Cost Allowance.

Credit score

A credit score is a number that lenders use to measure how risky it would be to lend you money. The higher your score, the less risky you are to lenders and the more likely you are to get approved for a loan and receive a lower interest rate. Your credit score is based on your credit history, including how often you make payments on time, the types of credit you have, and how much debt you carry.

With lease you keep your bank borrowing capacity, while with loan, you may increase your credit exposure.
You may be wondering if you should loan or lease a tractor purchase. In the long run, leasing might be the smartest option.

tractor financing

What kind of tractors can you finance?

The best financial institutions, such as Finco, know how to adapt their solutions to your needs. With this, they can finance all types of tractors, from utility tractors to industrial tractors, and even row crop tractors, garden tractors, implement carrier tractors, bulldozers, backhoe loaders, two-wheel tractors and, of course, ultimate generation autonomous tractors.

All brands should also be financed, such as John Deere, Mahindra, Massey Ferguson, Case IH, Sonalika International, Kubota, New Holland, among others.

Used tractor financing

This is a question that many of our customers often ask us: if it is possible to finance used tractors. The answer is simple: yes, it is possible. However, try to work with a finance company that has experience in your sector and knows how to customize its solutions to your needs.

Nonetheless, before looking for used tractor financing, don’t forget to look at the used tractor’s condition and history. For instance, you’ll need to check:

  • Any damage or wear and tear. This includes checking for cracks, leaks, dents, or rust.
  • Tractor’s service history. This includes getting a list of all the tractor’s repairs and maintenance from the previous owner.
  • Tractor’s performance. This includes taking the tractor for a test drive and making sure all the controls and functions work properly.

Once you have looked at the tractor’s condition and history, you will need to decide if the tractor is worth financing. If you decide to finance the tractor, you will need to find a lender that offers tractor financing.

How to find the best leasing company to finance your tractor?

When looking for tractor financing, it’s important to work with a company that has experience in your industry and knows how to customize its solutions to your needs. Finco is a leading tractor financing company that can provide you with the best leasing options for your tractor purchase. Contact us today to learn more!