Purchasing a truck can be a significant expense, even for the most established trucking companies. As with most vehicles, acquiring a truck typically requires either a lease or a purchase. Which is the wisest investment? Let’s take a look at some of the pros and cons associated with each option to help you make a more informed decision for your business.
Leasing a Truck
By leasing a truck you’re essentially financing the use of it as opposed to a loan, which finances the actual vehicle. There are various types of leasing agreements to choose from, but generally speaking, a truck lease covers the difference between the purchase price of the vehicle (excluding sales tax) and the projected value of the vehicle at the end of the lease terms.
One of the biggest differences between leasing a truck and purchasing one is what happens when all the required payments have been made. Unlike a purchase, with a lease, you will not automatically own the vehicle at the end of the terms. Some leases will allow you to purchase the truck when the lease ends for an additional amount of money, while others will allow you to trade the vehicle in, either for another truck or for the remaining cash value.
Depending on the type of lease you choose, you could end up paying more for a “closed end” lease. You could also be paying for mileage or wear and tear before you walk away as well. Furthermore, leases often include other expenses, such as security deposits, non-refundable acquisition fees and other miscellaneous fees.
In short, leasing provides flexible options, but sometimes that flexibility can come back to hurt you, as having an outstanding lease on a vehicle directly impacts your company’s cash flow, taxes and ability to replace or increase fleet.
Buying a Truck
Unless you can afford to pay in full, buying a truck typically involves taking out a loan for the purchase amount, less any cash down payment you can come up with. The loan will be for a set term, with incremental payments due that include whatever interest rate your business was assessed. Unlike leasing, purchasing a vehicle doesn’t involve nearly as many fees or expenses. It also provides the distinct advantage of allowing your business to establish and grow equity over time. When that last loan payment is made, ownership of the vehicle is transferred over to your company.
When purchasing a truck, there are a number of available equipment financing options from which to choose. Most importantly, as you make payments on the truck, unlike with a lease, you will continue to increase your equity in that vehicle. Once your financing obligation is met, you will be free to do whatever you’d like with the vehicle, including selling it to raise more capital for newer, better or additional truck purchases.
Ultimately, the choice of whether to lease or purchase will depend on your company’s unique situation. It will also depend on cash flow. If you’re looking to increase your fleet, trucking factoring can help provide an additional avenue of income to help make lease or loan payments more manageable.