Understanding Implement Loans: What You Need to Know

Table of Contents

• Introduction
• What Are Implement Loans?
• How Do Implement Loans Work?
• Checklist Before Taking an Implement Loan
  • Determine Equipment Needs
  • Consider Loan Terms
  • Understand Collateral Requirements
  • Evaluate Credit Score
  • Look for Financing Alternatives
• Salient Features of an Implement Loan
• Eligibility for an Implement Loan
• Documents Needed for an Implement Loan
• Benefits of Implement Loan
• Conclusion

Introduction

In Indian agriculture, tractor implement is an essential part of any farming activity. The farm implements have helped increase farm productivity by saving time, money and labour. However, buying or upgrading a tractor implement can be costly, thus financing becomes crucial for many farmers. Implement loans, also known as equipment loans, are a common solution for farmers looking to invest in new farm machinery.

In this blog, we explain what implement loans are, how they work and what farmers need to know before borrowing.

What Are Implement Loans?

Implement loans, like tractor loans, are a form of agricultural financing specifically designed to help farmers acquire various farm implements and equipment. These loans provide the necessary capital to purchase implements like rotavator, tractor trolley, MB plough, Thresher, Straw Reaper, Baler, and Super Seeder. Implement loans can be an invaluable resource for both small-scale and large-scale farmers, as they make it possible to access the tools needed to enhance crop yields and farm efficiency.

How Do Implement Loans Work?

Implement loans work similar to other types of instalment loans. The lender provides the farmer with a loan for the purchase price of the equipment. The loan amount and interest rate depend upon applicant's CIBIL score, down payment, and loan term. A higher credit score, shorter loan terms and a bigger down payment generally result in lower interest rates.

In most cases, the primary security for an implement loan is the hypothecation of farm implement being taken. And, the collateral security is the preowned tractor or hypothecation charge Tractor. The lender can repossess the equipment if the farmer defaults on the loan. The loan is usually paid off over a set period, ranging from one to six years.

Checklist Before Taking an Implement Loan

Before applying for an implement loan, farmers should consider the following checklist, which includes equipment need, loan term, collateral requirements, and credit score, among others.

Determine Equipment Needs

Farmers should have a clear understanding of the implement they need to purchase. Assessing the current equipment and identifying the required upgrades can help farmers determine which equipment to finance.

Consider Loan Terms

Farmers should carefully evaluate the loan terms, including interest rates, repayment schedules and fees. Comparing the loan offers from different lenders can help farmers select the best option.

Understand Collateral Requirements

The basic understanding of the collateral security is important. In most cases, collateral is either the preowned tractor or hypothecation charge implement or both. In case of loan default, lender can repossess the kept collateral. Farmers should ensure that they can make the required payments to avoid losing their equipment.

Evaluate Credit Score

Credit score plays an essential role in obtaining a loan. Farmers should check their credit scores before applying for a loan and address any issues to improve their scores. A higher credit score not only increases the likelihood of loan approval but can also result in lower interest rates. In case, the credit score is low, then build your credit score before applying for an implement loan.

Look for Financing Alternatives

Farmers should also consider other financing options like leasing or renting equipment. Leasing allows the farmer to use the equipment for a set period, with the option to buy or upgrade it after the lease term. Rental agreements may be shorter and can offer a more flexible payment option.

Salient Features of an Implement Loan

The top features of implement loans offered include the following:

• The entire loan journey is fully digital or paperless to guarantee an easy loan process.
• From loan application to disbursement, you get help and support at every step.
• Digital KYC ensures a fast loan application process.
• The loan gets approved within a day, and the loan amount is disbursed within two days.
• You have the options for flexible repayment on the basis of loan tenure, income and crop cycle.
• You can get a loan tenure of up to 6 years with no hidden charges.

Eligibility for an Implement Loan

Eligibility criteria for an implement loan may vary from one financial institution to another. However, there are some common eligibility factors that most lenders consider when evaluating loan applications for agricultural equipment. Here are the typical eligibility requirements:

• The CIBIL or credit score must be 700+.
• You must own the tractor in your name.
• The tractor must have a valid Registration Certificate (RC)
• A purchase bill is required if the purchase is within 90 days.

Documents Needed for an Implement Loan

When applying for an implement loan, you will typically need to provide specific documents to the lending institution to support your application and verify your eligibility. The following is a general list of documents often requested when applying for an implement loan:

• You must complete and submit a loan application form the lending institution provides.
• A quotation or invoice from the supplier or manufacturer of the implement you intend to purchase.
• Government-issued identification documents to verify your identity. They may include a Passport, Driver's License, PAN card, Voter ID card or Aadhaar card.
• Proof of your current residential address is required. Common documents include utility bills (electricity, water, gas), a rental agreement, a Passport, an Aadhaar card or a Voter ID card.
• Verify tractor ownership with documents like Registration Certificate (RC).

Benefits of Implement Loans

Implement loans offer several benefits for farmers:

• Access to Modern Equipment: Loans enable farmers to invest in the latest farming technology and equipment, which can significantly increase productivity.
• Flexible Repayment: Many implement loans offer flexible repayment options that match the farming season, helping manage cash flow.
• Preservation of Capital: Farmers can preserve their capital for other operational expenses or investments by spreading the cost of acquiring implements over time.
• Tax Benefits: Depending on your location and tax regulations, you may be eligible for tax benefits related to financing agricultural equipment.

Conclusion

In conclusion, implement loans are an effective way for farmers to purchase necessary agricultural equipment. Farmers should consider their options and understand the loan terms and their responsibilities before borrowing. With careful planning and consideration, farmers can secure the right financing for their equipment needs and invest in their future success.