According to a report in The Hindu, construction industry in India is a major contributor to the GDP and employs over 33 million people. This will further go up with various government schemes that aim to erect smart cities and rebuilding numerous regions and infrastructure. This statistic is itself evidence that construction industry is on a high and is fuelling the demand for construction equipment. This in turn has resulted in an increase in requirement and demand for construction equipment loans. Construction equipment is costly and needs heavy funding; the loan ensures that finance needs are taken care of. Before availing the loan, the borrower must be very clear about the terms and conditions of the loan. We are going to discuss numerous terms that are associated with construction equipment loan so that next time you can take a sound decision regarding the loan.

This loan can be extended towards both used as well as new construction equipment. The loan could be towards their purchase, servicing, overhaul or maintenance. Construction equipment means any machinery and tools that are used for the purpose of construction of roads, buildings etc and include the following:

☞Tipper/ dumpers

☞Road rollers

☞Excavators

☞Backhoe loaders

☞Transit mixers

☞Pavers

☞Dozers

☞Compressors

☞Drills

☞Cranes

☞Crushing plants

☞PMC plants

☞DG sets

☞Reach stackers

☞Piling rigs

Refinance

When a borrower seeks to replace his present loan with a loan carrying different terms and conditions then it is known as refinancing. The purpose of refinancing can range for availing benefit of lower rate of interests to favourable terms and conditions of the loan.

Working capital finance

Working Capital loan is an ongoing loan which is extended for bridging a temporary gap between available funds and fund required to run daily operations. There is no fixed duration of the loan and it acts as an additional credit line as and when there is a need. A comprehensive agreement covers such loans specifying cover duration, rate of interest and repayment terms. Cash credit and Overdraft are types of working capital loans.

Cash Credit

Cash credit is also a type of working capital loan where a borrower withdraws an amount more than his credit against security. Security could be in form of inventory and stocks.

Overdraft

Overdraft refers to drawing amount over and above your balance in the current account held in the bank. Overdraft facility is also covered under an agreement and as and when there is an overdraft, the balance is shown as negative.

Inventory funding

Any funding or finance provided by the bank on security or hypothecation of inventory is called inventory funding.

Foreclosure Charges

Sometimes if there is abundant cash flow then a borrower may decide to pay up the entire amount of loan before the tenure and close it. This helps in saving interest but it comes at an extra cost for the borrower. Some lenders do not charge foreclosure penalty and if there are chances that you would be able to service the entire loan before the loan tenure then go for lender who allows foreclosure.

Differential prepayment penalty

Differential prepayment charges are similar to foreclosure charges except there is a slab of differential or different charges depending upon the stage that loan is into. The stage could be defined by loan amount pending or time. For example, a foreclosure early on (first 2-3 years) may attract a prepayment penalty of 5% whereas a loan in its later term may be charged only at 2%.

Asset verification charges

In cases where the asset being bought, in this case construction equipment, is mortgaged as security against the loan, the lender may want to verify it physically. This process asserts the existence as well as quality of the asset. Though the lender undertakes this procedure to secure the loan but the charges incurred on the same are recovered from the borrower.

Valuation Charges

This charge is applicable to only used vehicles where a valuer assesses the value of the vehicle and subsequently the loan amount. This valuation helps in arriving at a fair resale price of the vehicle. Irrespective of the amount the borrower is buying the car for, this valuation amount is taken as benchmark to extend the loan. Many large lending houses have their in-house valuers and do not charge any fees for the purpose.

Rebooking charges

Loan rebooking or reschedule charges have to be paid by the borrower in case he or she opts for increase or decrease of EMI or change in the tenure of loan.

Re-Possession charges

In case of failure in repayment of balance loan by the borrower, the lender can take possession of the equipment and auction it in public. The proceeds are applied towards unpaid amount of loan. However, the costs incurred on this entire process are recovered from the borrower. This could be defined as a percentage or a fixed amount.

Approved dealer

Construction equipment dealers and distributors may tie up with lenders so that anyone who wants to buy equipment can be directed to the lender for funding requirements on favourable terms and conditions. This helps lenders and dealers get business and make it convenient for the borrower to get loan. This does not in any way bind lender to grant loan to just about any borrower and at the same time gives freedom to buyer to pick a loan from whomever he or she wants.

Leasing

Instead of buying equipment, the borrower may choose to take it on rent over a long period; this arrangement is referred to as leasing. Lenders extend construction equipment loan to the borrower for lease funding needs too.

Top up loans

Top up loans are extended by lender over and above the agreed loan amount. Top-up is usually small in value but allows bridging the emergency fund deficiency faced by the borrower. It may have the same or different terms according to loan agreement signed by the borrower.

Swapping charges

Swapping charges are incurred when borrower changes the mode of payment by switching from ECS to PDCs or vice versa, changes bank account whose PDCs or ECS facility is given to lender or any change in the name of borrower where co-applicant becomes main applicant.

If you are looking at construction equipment purchase and expand your business, do visit Letzbank , which brings the best of lenders under one roof, offering great deals to potential borrowers. You can filter out the lenders on your terms and go for one who suits all your requirements.

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