Pros and Cons of a lease for a Commercial Truck
Ok, you have been driving a commercial truck for a couple of years and you like being a professional truck driver. But maybe you want a little more authority on operating the truck. Maybe you are tired of sharing the truck with other drivers in a slip-seat arrangement. Maybe you just want to drive newer equipment then the company is assigning you. Maybe it is a pride of ownership issue or you think that you can make more money then just being a driver.
Being an Owner/Operator is not for everyone but for many it is the way to go. Regardless of your reasons, you now have to decide: Lease or Purchase (with a loan).
With a lease – as compared to a loan to purchase, you generally have a lower (or even no) down payment, your payments will be lower; the leasing company normally assumes a portion of the maintenance and repairs (unless caused by your actions or in actions); you have greater flexibility to upgrade to newer, nicer, different equipment; and at the end of the lease, you can walk away with no additional requirements.
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However, with a lease, the equipment is still owned by the leasing company and you are accountable to them for insuring that the truck is maintained (both preventative and demand); you can not make modifications or changes and you might have a limit on where you can take the truck (only certain states, no Canada, etc.). Many leases include the option to purchase the equipment at the end of the lease period – typically 3 to 5 years, but could be any time frame – however, the total cost of the purchase of unit may be total greater then if you just obtained a loan.
Advantage of a lease for a commercial truck
One hidden advantage of leasing is that you get to drive the unit before you are stuck with it. Sort of like renting cars to get a feel for how much you like a specific model before going to a dealer to purchase one.
You may be required to obtain and pay for special insurance under your lease agreement. The company that you are going to haul freight for might provide insurance, however your lease might require that the insurance on the unit is in your name. This could cost you extra money. It is important to carefully review all fine print to understand your obligations.
Another issue is that when you purchase the truck, you are making an investment in equipment and that equipment is now an asset. When you lease, the lease is an obligation, which is could be a negative affect on your overall financial balance sheet.
Like all decisions you will have to make in your truck driving career, you have to carefully balance the pluses and minuses of each situation. There are long term and short term advantages and disadvantages to leasing and to purchase loans. Don’t let the complexities of leases or purchases keep you out of the game. There are as many advantages as disadvantages to being an owner/operator.
Many dealers have the the option for you to finance your tractor and trailer right on location. This may allow you to pick out your truck and drive it home the that day. However, you do not have to get financing from the dealer, in fact you may not want to do it as you may end up paying a higher price in the long run. The dealer’s leasing company may give you the best deal they have – but it may not be the best deal for you. If you already have an established banking relationship with a local bank or credit union, discuss your plans with a loan officer and see what they can offer you. Your relationship with them might get you a much better deal in the long run.
Shop carefully when you shop for a lease for a commercial truck.