Many depend on trucks to develop their commercial activities, whether companies or self-employed drivers. Despite this, maintaining a fleet can be pretty tricky, thereby compromising the competitiveness of the service provided.
In this context, truck leasing emerges as a better option, which anyone can always consider. It’s an alternative for those who want to reduce costs, have modern vehicles, and be able to meet specific situations that may arise.
Do you want to know the benefits of this option and see when it’s most advantageous to lease a truck? Keep reading to find out about these and more!
What Is Commercial Truck Leasing?
In general, leasing is a named contract that consists of using things against payment for a specified period.
In the case of commercial truck leasing, the lessor (also known as the financing party) agrees with the lessee (known as the user), the subject of which is a truck to be used for commercial purposes in the period specified in the agreement with appropriate remuneration.
The truck that’s the subject of the contract can be of any type. So regardless of whether it’s a light truck, medium truck, or heavy truck, it can be “leased.”
Types of Truck Leasing
In every leasing, there are two types:
This lease operates on principles similar to a rental. The subject of the lease, i.e., the truck, remains part of the lessor’s property, and it’s the lessor who may make depreciation write offs on this account, including tax deductable cost and the initial and total monthly payments.
This resembles an installment sale. Also, it differs significantly from operating leasing in that the subject of the contract is assigned to the lessee’s property. Then, the lessee may include depreciation write-offs and interest on lease installments as tax-deductible costs.
Another characteristic feature is that the duration of the contract is shorter than the economic wear and tear of the leased asset.
The main differences between an operating lease and a financial lease are presented in the table below:
The subject of the lease
Remains in the lessor’s property
It passes to the lessee’s property
May be made by the lessor
Can be made by the lessee
Tax deductible costs
The depreciation write-offs are the initial payments and monthly payments
Depreciation write-offs and interest on leasing installments
Paid adequately to each leasing installment
Fully paid in advance
What to Look for in a Commercial Truck Leasing Contract
When deciding to conclude a commercial truck leasing contract, you need to pay attention to many issues that’ll later affect fulfilling the terms of the signed contract. Let’s consider the most important points in the contract.
The amount of leasing fees and the possibility of changing their rates
Method of settling the total damage to the truck
Early termination of the contract
Additional costs, for example, contractual penalties
Restrictions on the use of the truck
Scope of the additional service package
The amount of truck insurance
The amount of any service fee
As part of the truck leasing contract, the customer more often receives an additional package of services, such as free periodic and ongoing inspections, a fuel card, and a replacement truck in the event of a breakdown or tire replacement.
Note that if you want to lease a commercial truck, you need to pay attention to the financing period and repayment terms. A more extended leasing period is associated with lower monthly installments. However, the total settlement will incur a higher cost for the entire transaction.
Also, determine the amount of the possible initial fee that you’ll be obliged to pay at the beginning of the contract and the conditions for buying the truck.
Advantages and Disadvantages of Commercial Truck Leasing
Commercial truck leasing has its advantages and disadvantages that are worth knowing before deciding to conclude a leasing contract.
Advantages of Commercial Truck Leasing
Let’s have a look at the benefits you get when leasing a commercial truck.
The contracting procedure is much less complicated than in the case of a loan
You only pay for the use of the truck
There’s the possibility of getting a discount on some truck models
The lessor pays the truck insurance
The registered truck is quickly released
The lessor sometimes offers to cover the cost of repairs and maintenance of the truck
Disadvantages of Commercial Truck Leasing
Now it’s time to go over some drawbacks of commercial truck leasing.
You don’t get any insurance discounts, because it’s not you who concludes the insurance contract, but the lessor
It’s often not possible to obtain compensation in the event of a collision without the consent of the lessor
Delay in payments of leasing installments may result in termination of the contract
You can’t modify the truck permanently
The creditors of the leasing company can seize the truck because, technically, it owns it
How to Choose the Best Leasing Company
The popularity of truck leasing influenced the development of competition in the market. Before choosing a specific company to conclude a leasing contract, you should consider several factors that’ll allow you to select the best leasing company. Some of these factors are listed below:
Prices: Favorable leasing installments are essential from the point of view of your financial condition. The offer must be suitable for you so that paying the fees on time won’t pose any difficulties.
Offered promotions: Before choosing the appropriate leasing company, check whether it provides promotions for specific truck models. Perhaps you’ll be able to find a good truck in bargain conditions.
Discounts in leasing installments: Apart from promotions for specific truck models, it’s also worth checking whether a given leasing company offers discounts in leasing installments. Due to the high competition in the market, leasing companies offer more and more attractive conditions for repayment of leasing installments.
Any additional costs: Check what you need to pay for, e.g., the specificity of truck insurance, whether repairs are included in the price, or you have to pay for some work out of your pocket, etc.
The amount of the limits: Determine whether they’re set and, if so, what the limits of miles traveled on a monthly, yearly scale, or the duration of the contract are.
How Is the Leasing Rate Calculated?
The monthly leasing rate is calculated from different individual items and is usually calculated according to your requirements and wishes.
In addition, special conditions are often granted for companies that lease several trucks simultaneously. In general, the following items are included in the calculation:
The Vehicle Model
Of course, it makes a difference whether you choose a day cab truck or a flatbed truck. But special equipment also has a direct impact on the leasing rate. So, settle for sufficient comfort, but avoid excessive extravagances that turn into disproportionately high monthly costs.
Loss of Value
The rule of thumb here is that popular models with stable value cause significantly lower monthly costs than unusual trucks or vehicles that quickly lose value.
The Contract Period
The loss of value is most significant in the first year – so it’s not particularly wise to agree on a short term for new trucks. But also, too long maturities aren’t recommended because the loss of value at the end is too high. So, contract terms of between two and four years are considered optimal.
Amount of Down Payment
The amount of the down payment naturally directly impacts the calculation of the monthly rate. Therefore, if you decide to lease without a down payment, the monthly charge will be higher.
The Calculation Formula
According to a fixed formula, the monthly leasing rate is calculated from the purchase price, residual value, and interest rate of the offer. Also, you can find online lease calculators that’ll do the job for you.
The Leasing Factor
With the leasing factor, you can assess the attractiveness of individual leasing offers. Divide the leasing rate by the list price and multiply by 100. Top offers have a leasing factor below 0.7. Outstanding ones are less than 1.0, and good ones remain below 1.3.
What Costs Are Incurred in Addition to the Leasing Rate?
The monthly leasing rate is the fee for using the vehicle. All costs that are necessary for the (one-time) transfer, the (ongoing) maintenance of the truck, and the miles that are driven remain unaffected by this:
Costs for the transfer and registration: The transfer costs depend on the model and the manufacturer or the dealer or lessor. You should pay attention to this item when comparing offers. The differences are sometimes significant.
Motor vehicle tax: The tax to be paid for the truck.
Motor vehicle insurance: You must take out the mandatory liability insurance as a lessee. You also have to take out comprehensive insurance to cover any repairs in the event of an accident that’s your fault. Also, CAP insurance, which compensates for reducing value after an accident, is recommended.
Inspections and maintenance: You’re contractually obliged to attend all prescribed inspection appointments in recognized workshops.
Who Can Get a Truck on Lease?
We’ll leave large businesses aside since such transactions aren’t a problem for them. As a result, the following organizations can count on leasing:
Keep in mind that not all leasing companies work with individual entrepreneurs. In addition, you should be aware that not all leasing companies work with organizations that keep their records according to the tax system.
Types of Leasing Companies
Leasing companies can be divided into two types:
Private leasing company
Leasing company from the bank
The first, as you understand, works at the expense of its funds or funds of third-party investors. The second companies are subsidiaries of banks, and money for leasing operations is taken from the bank.
With the first company, you get real additional chances for approval. Then, when working with bank leasing organizations, you work with the bank, which means that there will be no difference. So, you can contact the bank directly, or you can get the bank leasing company.
By the way, leasing companies, as a rule, don’t independently check the credit history of their possible future clients or have their own opinion on the client’s credit history. However, the leasing company employees are well aware of the peculiarities of the truck market. Therefore, they’ll treat clients with understanding when they have small delays in payments.
Frequently Asked Questions
Is Commercial Truck Leasing Profitable?
Leasing a commercial truck is beneficial in terms of the possibility of throwing it into the company’s income costs. In addition, it doesn’t require significant cash, and the amount of all fees is determined individually, depending on the expectations of the entrepreneur and the specific truck model.
Can Young Companies Benefit From Leasing Trucks?
Yes, startups do benefit from commercial truck leasing. The lessor doesn’t require a long presence on the market or proof of revenues. It’s young entrepreneurs who often decide to lease due to limited funds to start.
How Can I Start the Process of Leasing a Commercial Truck?
It’s best to start with getting acquainted with the delivery vehicles from a specific lessor and calculate the initial fees using a lease calculator.
Leasing a truck for commercial purposes is an advantageous move that’s specific and distinct from a simple truck purchase. First of all, leasing a truck means that we don’t become its owner but only its users, which may limit its use.
Commercial truck leasing can be a good alternative for people who can’t get a loan because the leasing contract is more straightforward than the loan agreement. And the security is usually only a promissory note.