Leasing vs. buying trucks – which is better?
If you own a moving company, you are probably wondering which is the best way to get a nice fleet of moving trucks. Which is better, leasing or buying trucks? As a successful mover, you should learn the difference first. Think of a truck lease as a long-term rental. Basically, you don’t own the vehicle and at the completion of the typical closed-end lease you need to return it. Then, you need to pay any end-of-lease costs that are due, in order to complete your obligations. Buying a moving truck is more simple, yet a more expensive solution. Let’s give it some thought.
How does the lease differ from buying a truck?
Leasing or buying trucks – the difference is huge. Quality moving service requires quality transportation. When you buy a truck and pay for it with a loan, the truck is still yours at the end of the loan period. If you want a new truck it’s up to you to trade or sell the old one.
Why are lease payments lower than loan payments?
With few exceptions, every new truck depreciates as soon as you drive it off the lot. And then, it continues to depreciate with time, age and the miles. This is especially significant for expert interstate movers because they travel long distance.
Most noteworthy, lease payments cover only the portion of the truck’s value, not its entire cost. Finance expenses are related to your payment and most states charge sales tax on that amount. When you buy a truck with a loan you need to pay its full price, plus finance charges and the entire sales tax determined by your state. Depending on the trade-in value of another truck or your down payment, that can result in higher payments than for a lease. Even if you obtain a long-term loan, it can be more expensive.
Compare lease agreements
A moving business, especially coast to coast moving requires reliable equipment. Leasing or buying trucks, what to choose? In order to make the right decision, you should compare:
- The truck cost used to calculate the lease, and whether that cost is negotiable
- Up-front payments
- Mileage allowance
- Lease end fees, along with charges for excess miles
- Buying options during the lease or at lease end
Key benefits of a lease:
- By choosing to lease, you will avoid the many hidden costs of buying
- Leasing helps you concentrate on your business model
- It doesn’t depreciate
- Leasing keeps your fleet fresh and up-to-date
Rapid changes in technology nowadays result in vehicles becoming obsolete more quickly. And with leasing, trade cycles are shorter. This means that your fleet operators can upgrade to new technology sooner than if you owned your vehicles. This may appeal to professionals that prefer to get a premium product to attract and retain drivers, or for operators that want brand new technology.
Some movers may prefer to outsource particular technology types or vehicle, like specialized trailers or equipment trailers, to control their staffing costs. Full-service leases often include maintenance. And fleet operators that don’t have their own shops or mechanics can certainly benefit from this.
Additionally, rental terms in lease contracts can allow you to increase capacity for short-term contracts or seasonal work, and reduce it when demand decreases.
What to consider when leasing or buying trucks
Consider your monthly cash flow when deciding on leasing or buying trucks
Leasing a truck often has a lower monthly payment than financing a truck with the same loan term. With a lease, you are paying for the depreciation of the car during years rather than the whole cost. Hence, if you need access to more cash every month, leasing may be a better option for you.
How much do you have saved for a down payment and initial fees?
Luckily, most lease agreements have low down payments or you can negotiate with the dealer to waive the downpayment. This way, you’ll pay less for the sales tax on a lease as well. With a lower downpayment, leasing can be a smaller impact on your budget.
How much you drive the trucks?
If you drive a lot, more than 10,000 to 15,000 miles, you’ll probably have to pay extra for each mile, depending on the lease agreement.
Most likely, you need a truck for business
When you lease, a portion of the truck’s depreciation and financing expenses can be deducted on your taxes. However, interest on loans to buy a truck, are not deductible. You can check out the IRS guide for how to calculate the tax deduction for a leased vehicle. There are a lot of calculations based on your business percent use of the truck, how much it costs, and additional costs related to the truck, such as maintenance and gas.
How long you plan on keeping the truck affects whether leasing or buying trucks is the better option
This is a big question. If you really only want to drive the truck for a few years, leasing is probably the most convenient option. However, if you try to get out of the lease before the term is up – you will need to pay a lot. Probably as much as six extra months of payments, according to experts. So, you’ll need to be sure you can stick with all the terms of your lease when choosing this option. And remember, warranty repairs are covered no matter who owns the truck. Lease terms typically end before a truck goes out of warranty.
Leasing or buying trucks – have you made a choice? Now you know the difference and the conditions, you just need to choose the option that suits you best!