After you've decided to finance a semi truck, you're usually provided with two options. You can take out a lease on the truck or you can take out a loan. While the programs are similar, key differences can make the options excellent for one trucker while they are not so perfect for another. Understanding the differences between leasing and loaning a commercial vehicle can help you make your final decision once you're ready to start a new phase of your career.
The easiest way to think about leasing is like renting. When you rent an apartment, you do not own it, but have the right to use it as you see fit, with some restrictions, until your lease is up. When you are renting an apartment, you are not responsible for most repairs, unless they are a result of your misuse. Instead, the landlord takes care of broken appliances, construction error, etc.
In the same way, truckers who lease semi trucks do not actually own the truck, but make payments on a lease schedule much the same way they would pay rent. These schedules are commonly 36 to 60 months but can vary with the lease provider. The leasing company purchases the truck from its dealer of manufacturer and allows the trucker to use the vehicle. At the end of the lease, truckers have an option to purchase the truck for the residual value rather than returning it. The residual value is a predetermined rate decided upon lease provider and trucker, and is included in the original paperwork. Truckers can think of this as similar to a rent to own situation in housing.
Loaning is similar to leasing in that truckers make payments over a period of time, but these payments go to the actual value of the truck in addition to the cost of the loan. At the end of the loan period, truckers who have made all of the payments and maintained the loan agreement own the truck.
Both leasing and loaning have benefits that make them better options for some types of businesses. Leasing can be a good option for truckers who want a lower monthly payment, no down payment, the option of upgrading, and the chance to avoid debt. By leasing, a trucker or company pays less than required with a loan because the trucker is not actually covering the cost of the vehicle. In addition, by leasing one vehicle after another, truckers can upgrade frequently. Finally, leases are not considered debt by all companies as failure to pay would result in a simple repossession of the vehicle.
A negative side to leasing also exists, however. Truckers who lease their vehicles and purchase them at the end of the contract often pay more than if they had just taken out a loan on the truck in the first place. Depending on the lease provider and company, truckers may have to purchase extra insurance on the leased vehicles and may not be able to modify or upgrade their trucks. Finally, just like renting an apartment instead of buying a house, truckers who lease are not making an investment, but are simply borrowing equipment.
Because of this, the advantages of taking out a loan on a truck have to do with the fact that, once the contract is up, the trucker actually owns the truck. This allows the trucker to use the truck to his or her specifications. It also often means lower insurance payments and tax write-offs. Owning a truck, however, also means higher monthly payments and the commitment to a truck that may be hard to unload should you need to trade in the future.
For most Americans, buying a truck with cash is out of the question. Truckers who want to jump start or upgrade their business, however, have the chance to do so through obtaining a loan or a lease. Understanding the differences between the two financing programs can help truckers determine what is best for themselves and their businesses.
Marilee McCormack is the managing editor for Truckertotrucker.com which specializes in Trucks For Sale.
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