Should I Buy or Lease a Truck For My New Trucking Company?
Updated: Mar 16, 2020
To buy or to lease a truck, that is the question.
You need a truck to run a trucking company - that's obvious. What's not so obvious is whether you should buy the truck outright or lease it. This is the next big decision you need to make once you've developed your business plan and formed your entity for your new trucking company. There are both pros and cons to this decision and at the end of the day it comes down to personal preference and affordability.
First things first, know your personal financial boundaries. Know how much you must set aside as a down payment, if any, and what your future earnings will look like. Your projected revenue needs to be realistic to avoid getting into difficult situations when your expenses start to pile up.
Now to the important stuff: Should you buy or lease your truck?
Buying a Truck
From a long-term perspective, purchasing a truck is the best way to go and will save you thousands of dollars in the long run. You will build equity on a truck you purchase by making monthly payments - you can think of this as like a mortgage - and once all your payments are complete, you are the owner of the truck. Once you own the truck you can make the decision to trade it in for a new truck or keep driving it without payments. Another advantage of buying a truck is that you'll have lower insurance premiums compared to a leased truck.
Unfortunately, there is always a downside. A big disadvantage to buying a truck is the down payment you will need. Usually, the down payment will be 10% of the purchasing price for a new truck and about 25% for a used one. So, if the truck is being sold for $100,000, you need to be able to have $10,000 as a down payment. If the down payment is out of your budget, you may need to look at leasing your truck until you save up enough cash to buy outright.
Leasing a Truck
Unlike buying a truck, you do not build equity on it when you are leasing and therefore you do not own it at the end of its lease term. So instead of thinking of it as a mortgage, think of it more like renting. You will usually have a buyout price at the end of your lease if you decide to buy the truck outright. Because this truck is technically not yours, you will have to agree to certain rules when you sign the lease agreement. This will usually include keeping the truck in good condition for when you return it, minus the wear and tear of course. Another major downside is the restriction on mileage and charges for going over allotted miles.
One good thing about leasing is that the lessor company will pay for the maintenance of the truck. Since they are the actual owner of the truck and want it back in top-top condition, it makes sense that they will cover these maintenance costs. Another advantage of leasing is the short-term savings that you'll have. The monthly cost of leasing a truck will be less than when you purchase and there is usually a very small or no down payment upfront.
The decision to buy or lease your truck is one of the biggest and most important decisions you'll need to make when becoming an owner operator. At the end of the day, it all comes down to what you can afford at the time, your long-term financial situation, and how long you plan on hauling loads. Once you've made those decisions and have secured your truck, you're ready to get your CDL and you're one step closer to getting on the road!
Stay tuned for the next blog of the series: “How to get your CDL”.