Starting your own business as a taxi driver with ride-hauling platforms like Uber requires significant investment. And that is, whether you are just getting started or a seasoned driver aspiring to be your own boss but lack the upfront funds needed to buy a vehicle.
There are numerous advantages of owning an Uber car compared to being an employed driver, rents, or leases. Not only does ownership grant you more control over your business, but it also means a larger portion of your earnings stays with you.
However, the path to ownership is steep, especially given the rising car prices. For instance, consider a Mazda Demio—a popular choice among Uber drivers. The cost of a 2015 model has surged to a range of Ksh650,000 to 1,200,000. Raising this sum can be arduous, especially when you're just starting or you consider the time it could take to save that much.
So, how can you overcome this financial hurdle?
One avenue worth exploring is securing an auto loan tailored for ride-sharing drivers. These loans can help you buy your vehicle, giving you more control over your Uber business from the get-go.
This article will explore everything you need to know about auto loans specifically designed for ride-sharing drivers.
These are types of Auto loans offered to individuals looking to start a ridesharing business. This lending solution is tailor-made for those seeking to buy a vehicle and drive for ridesharing platforms like Uber, Bolt, Little Cab, and others.
Many prospective drivers find it challenging to procure a new vehicle due to financial and credit constraints. They often face difficulties qualifying for traditional auto loans that typically demand a reliable income source, good credit ratings, a substantial downpayment, or high monthly installments. To address this issue, various fintech and microfinance lenders have emerged to support rideshare drivers in obtaining loans to purchase vehicles for their entrepreneurial endeavours.
There are two types of Uber Car Financing Loans depending on your needs and how much control you want.
You will buy a car under the drive-to-own framework where you will steadily work towards owning the vehicle by making regular weekly or monthly payments, alongside additional leasing fees. At the end of the agreed-upon term, the ownership of the vehicle is transferred to you.
It's worth noting that the ridesharing platform exclusively connects you with third-party partners and doesn’t give loans or lease cars. These partners will evaluate your eligibility and extend your vehicle loan offer based on their terms and conditions.
This article will focus on the second option, how it works, and its pros and cons.
Before applying for a loan, you must ensure you meet the requirements to become an Uber driver. You will need these documents:
After that, you should understand what type of vehicle to consider, which will depend on the ride-sharing company you want to work with. For instance, if you're considering Uber, the vehicle you purchase should be a model year from 2012 or newer and have at least 4 doors.
Lastly, you should start searching for lenders. Different lenders provide various terms for Uber car loans. Therefore, explore different options and compare lenders based on several factors.
These factors can include the year the car was manufactured, the mileage requirements for the car, the interest rate, the loan tenure, the minimum deposit needed, and the range of minimum and maximum loan amounts available. This research will help you find the best loan option for your situation.
Before you start looking for a vehicle to buy, there are some important steps to take.
First, you need to set a budget, i.e., decide how much you can afford to spend on a car. Next, you should get pre-qualified to understand your borrowing possibilities. It helps you know how much money a lender might be willing to lend you and the details of your potential loan payments.
During this step, the lender examines your financial and credit history to see if you qualify for the auto loan amount you're seeking. They will then provide information about the loan, including the interest rate and how long you'll have to repay it. To do this, the lender will ask for your bank or MPESA statements for at least six months and review your CRB ratings.
However, it's important to note that being pre-qualified doesn't guarantee loan approval. It gives you a better idea of the financial boundaries you can operate when purchasing a vehicle. For example, if you're pre-qualified for Ksh700,000 with 80% financing, you'll have a clear maximum limit for your vehicle budget.
Once you've completed the pre-qualification process, you can begin searching for the right vehicle to purchase. This step becomes much easier since you have a better idea of how much you can afford. You can visit car showrooms and dealerships to find a vehicle that fits your budget and meets the requirements of Uber or any other ridesharing platform you intend to use.
After you've chosen a suitable vehicle, you'll return to your lender and initiate the loan application procedure. This typically starts with paying a processing and commitment fee to secure the vehicle and take it off the market.
You'll need to pay the car's valuation to determine its market and forced-sale value. Lastly, the lender will request updated financial and identification documents for a second assessment. If everything checks out, they will approve you for an Uber car loan.
The bank will provide you with an offer letter detailing the loan terms and the conditions you must fulfill to proceed. These typically include gathering the necessary deposit (down payment), installing a car tracker, obtaining comprehensive insurance, acquiring PSV insurance, and securing NTSA In-charge.
Once you've completed these steps, your lender will provide the funds to finalize the vehicle purchase, and you'll be all set to kickstart your business.
Once you have received the loan amount and bought a car, you should apply to be an Uber driver. Completing an application is fairly easy; you will be required to pass the background check, complete the certification session, and you can start driving within a week and earning.
You will then use the money you earn to make payments on your Uber auto loan. The frequency of payments—weekly or monthly—depends on your loan terms. Consider automating payments to avoid missing any.
You should ensure you are working enough hours to cover your loan repayments, buy fuel and pay for car maintenance.
Throughout the loan tenure, you will be required to make regular repayments as stipulated in your loan contract. If you do not miss any repayment, you will successfully repay your car loan by the end of the loan period. This means that you will have fulfilled your financial obligations and covered the total amount borrowed and any applicable interest.
After you finish paying, you will start the process of assuming 100% ownership of the vehicle. This typically involves getting a lien release letter from your lender, transferring the logbook to your name, and ending the NTSA in-charge partnership. Once this is done, the car will be yours.
Taking a loan to buy a car to start a business as a rideshare driver can be profitable if you can work the required hours to meet repayments, fuel your car and maintain it. But to know if it is a suitable option for you, you need to weigh the pros against the cons and decide based on your financial situation and needs.
Read Also: The 7 Hidden Costs of Car Ownership in Kenya
The process of applying for a loan can be long and overwhelming. To avoid any regrets later, do not rush through the process. Before proceeding, take the time to understand how Uber's business works and the process of applying for an auto loan. Additionally, get everything, especially your financial documents in order to ensure a faster process when making your application.
A lot can happen before you complete repayment; to avoid default, build an emergency fund you can fall back on. If you experience financial problems, ensure that you contact the lender immediately to avoid repossession. The law permits the creditor to repossess, auction, and resell your vehicle without the need to go to court.