Deciding whether to buy, lease, or finance a truck is stressful. You need to weigh all your options and consider the pros and cons. Making an informed decision will reduce your chances of regret down the line. Here is some vital information on buying, financing, or leasing a truck, as well as points you’ll want to keep in mind while making your decision.
Many truckers choose to lease for several reasons. Not only does leasing a truck require a shorter commitment, but there’s also little upfront cost. Applying for a loan for a down payment is a hassle, and depending on your credit, you might not qualify. If you’re new to the industry, you may want to lease. Many truckers ultimately decide on a different career path after a few years. If you aren’t sure whether you want to stay in the field, then you’re better off leasing a truck since you can terminate your lease and move on.
Another benefit of leasing a truck is there is less financial risk involved. You have a set payment and can budget for it monthly. Purchasing is a big commitment. Purchasing means you’re on the hook for the bill until it’s paid off. You may run into financial issues if you have an unexpected change of circumstances over the years.
Something else to consider when leasing a truck is the cost of maintenance. A leased truck is often brand new or only a few years old, meaning you’re unlikely to have costly repair jobs and unexpected issues. If you purchase, your budget will limit your options, and you may only be able to afford an older unit with potential maintenance problems. While you’re leasing, you can always upgrade to the newest model too.
While there are plenty of benefits of leasing a truck, there are also some drawbacks. For example, you won’t end up owning it once your lease is up. Owning your own rig is a source of pride for many truckers, and they have the freedom to make modifications. Also, you might end up paying more for your leased truck over time. Yes, down payments on a purchased truck are substantial, but the payoff at the end is your new asset.
You should always carefully review any lease agreement you sign. Many lease agreements include clauses and other stipulations you may not fully understand until after you’ve signed. For example, some trucking companies may include a higher escrow, eliminate your health insurance, or even deduct your payments from your paycheck. Leasing a truck may be the right decision for you, but you should carefully consider all factors before making that choice. We have a blog article that talks about the red flags to watch out for in equipment lease purchase programs.
There are two main types of leases when it comes to trucks. You will either sign a capital lease or an operator lease. With a capital lease, the rig becomes yours after you’ve completed your payments. There may be a small buyout at the end of your term, but you will own it outright. Before signing, understand these agreements require you to handle all maintenance issues and cover related taxes. With a capital lease agreement, the interest incurred can be included as operator expenses.
An operator lease may be a good option for those interested in starting a fleet. Unfortunately, you don’t have the ability to own your truck since operator leases are comparable to renting. You cannot add the cost of depreciation to your business expenses, and the overall financial liability is high. However, operator leases are tax deductible, and your tax bill is simplified since you cannot claim it as a business expense.
Before you lease a truck, ensure your tax situation is stable and understand how your credit score affects your options. Carefully read the terms of your lease and ask for clarification if necessary.
Maybe you’re thinking about buying your own rig. You’ve already considered your leasing options but decided to purchase a truck because it is the right choice for you financially and professionally. Like leasing a truck, buying and financing come with its own set of considerations. While you’ll end up with an asset, you’re making a substantial financial commitment. Following are some things to consider while preparing to finance your truck.
When financing your truck, you’ll want to have everything in order, including your tax documents, profit and loss statements, the number of trucks you want to purchase, and your credit information. When you fill your application out with the dealer, they will let you know if there’s any other information they need.
The higher your credit score is, the better your payment options and interest rates are. This fact is true whether you want to finance or lease your truck. If you’ve experienced bankruptcy in the past, you can still apply for financing or a lease. You may need a co-signer to qualify, or you could use existing assets to secure your agreement.
Different companies require different down payment amounts. Depending on your credit score, history of your business operations, and other factors, you may not have to put any money down upfront. Some companies require ten to thirty percent as a down payment, so weigh your options carefully.
Understand that the terms of payment generally depend on the truck’s age. For example, newer trucks are better suited for longer-term agreements, while shorter terms are better for older equipment. When buying a truck, you should ensure it is free of liens. If you’re considering an older rig, confirm it’s less than ten years old with no more than 700,000 miles. Finding out this information will keep repair costs to a minimum and prevent them from becoming a financial burden.
Deciding whether to buy, lease or finance a truck can be difficult. By doing your research, weighing all of your options, and being honest with what you can afford, you can increase your chances of making the right decision. Also while you are trying to decide whether to buy, lease or finance your truck getting the right truck is equally important. Learn how to buy or lease the right equipment in this article.
Be sure to read our next article about Equipment Lease Purchase Programs: 9 Red Flags to Look Out For.