Choosing whether to lease or buy a truck does not have to be as difficult as it may seem. Many fleet owners use leased trucks, while others buy them outright. Often, the choice between leasing or buying comes down to the truck’s intended purpose and how much money you chose to spend.
There are a few factors to consider when deciding to lease or buy a commercial truck. Read below to find out more about truck buying and leasing options.
Things to consider
Adding a truck to your fleet is not something to jump into; there are a few things to consider first. Answer these questions to help you determine the best option.
- How much money do you expect to spend?
- Will the freight the truck hauls be enough to make a lease payment?
- How many miles do you expect to get out of the vehicle?
- What are the available funding options for both purchase and lease?
Deciding between new or used trucks
Once you have considered your financing options and the future business use of the truck, you can decide whether to get a new or used truck.
There are some drawbacks to adding a used truck to your fleet. It may be more cost efficient in the beginning, but the truck may develop problems as it acquires more miles. Another disadvantage to buying or leasing a used truck is that they often have a very limited warranty if any. Some used truck dealers sell their vehicles as-is, which means the dealer has no responsibility to fix the truck after the papers are signed.
However, there are many well-maintained used trucks available that are still a great deal. Make sure the truck has regularly been serviced and has low mileage for the purchase price.
The initial cost of buying or leasing a new truck is a lot higher. However, a new truck comes with factory warranties, which covers major problems that arise within the warranty period. Choosing a new truck also ensures you are getting the latest in mechanical technology. Because they are more fuel efficient, a new truck may save on operating costs. Newer heavy-duty trucks also use catalytic reduction, which reduces stress on the engine.
When deciding between a new or used truck, think about the miles you plan to get out of it and how much money you want to put into the truck. If you run a high-volume fleet, a new truck is probably the best option. However, used trucks can be a great choice for a farmer or small business running minimal mileage.
Pros and cons of leasing a truck
There are two possibilities to choose from when it comes to leasing a truck: a conventional lease or leasing to purchase. A conventional lease is a lot like rent; you pay a monthly lease payment with no agreement to an end purchase price. If you are leasing to purchase a truck, you own the truck at the end of the leasing period.
Advantages and disadvantages ofconventionalleases
With a conventional lease, the company you lease from is obligated to fix the truck if it becomes damaged or breaks down. Another upside to a conventional lease is a smaller down payment. Conventional lease payments are often cheaper than purchase payments too. If at any point you decide to buy the truck, you may be able to purchase it at a reduced price.
However, no matter how long you pay for the truck, it never becomes yours unless you make purchase arrangements. You cannot make upgrades to the truck, or it may void your lease contract. Since you are leasing rather than buying the truck, it never builds equity either.
Pros and cons of a lease to purchase agreement
Lease to purchase arrangements are most often seen as contracts between big trucking companies and their drivers. Leasing from your employer gives you the freedom of an owner operator. You can decide what loads to take and how long you want to stay on the road. Many trucking companies that offer the lease to buy option require the truck to be serviced by their service technicians only.This is a good thing, considering the company you are leasing from will probably maintain and repair the truck at a less expensive rate.
On the other hand, the exclusive servicing requirement could be restrictive if you are out on the road when the truck breaks down. You must call the company to have the truck towed to their terminal. Another downside to a lease to buy arrangement is that it is your responsibility to ensure your truck hauls enough merchandise to pay for its lease payment. If your truck is not running enough merchandise to pay for itself, the trucking company can repossess the truck.
Pros and cons of buying a truck
There are obvious benefits to buying a truck outright, but there is a downside too. Read below to weigh the pros and cons of buying a truck.
Advantages of buying a truck
One of the biggest pros to buying a truck is that you own it. You can modify and use your truck as you wish. Because you are buying it, the truck builds equity, and you can use it as a tax write-off. You can also loan out, trade off or sell the truck if you choose.
Another benefit to buying a truck is that commercial truck insurance is usually cheaper than insurance on a leased truck. Depending on your credit and cash flow, some loan companies may not ask for a down payment when you purchase your truck.
Disadvantages of buying atruck
When you own a truck, insurance and repair bills are your responsibility. If you buy a truck from a finance company, they may require a certain amount of insurance coverage to protect their investment. This insurance can be high, depending on the type of coverage the finance company requires. If the truck you purchased did not come with a factory warranty, you might be faced with outrageous repair bills if something significant breaks down on your truck.
Finally, there are still taxes to consider in addition to other factors. Consult a tax professional before deciding whether to lease or buy a truck. The type of commercial vehicle you are leasing or buying and the agreed price has a direct bearing on how much tax you will pay. Sometimes, leasing or buying a truck can be used as a tax write-off. Make sure you are informed of all tax considerations before agreeing to lease or buy any commercial vehicle.