Before we can answer that we have to clarify what we mean by a lease. In the trucking industry it can mean different things. Here are some of the different type’s of leases available in the trucking industry:
True Operating Lease – you buy a truck at a dealership and you lease the truck having the option of turning the truck back in or paying off the residual and owning the truck. Benefits are the tax deduction, low or no down payment, lower payments, etc. This is how a truck driver can purchase a $175,000 Peterbilt and be able to afford the payments. The monthly payment is tax deductible and it’s “off balance sheet” for the more sophisticated owner operator.
Lease Onto A Carrier – you lease a truck from the carrier you haul for. This arrangement has helped many wannabe owner operators get into truck “ownership” pretty easily. There are potential problems, however. First your tied to that carrier so if they cut back your routes your stuck; you can’t pick up more routes from other carriers. Second it’s common that there are hidden cost that are not made known upfront. The most common of these are residual or balloon payments at the end. We get probably 20 calls a week from guys in a panic that they are at the end of their lease and there’s a $20,000 ballon payment do that they didn’t know about. Cost of repairs are another issue. This type of lease can be a good thing if you read all supporting documentation and go with a reputable carrier.
Capital Lease – really just a finance agreement a capital lease allows the purchaser to get into the truck with low or no down and with a predefined residual payment (or none at all in some cases). The IRS doesn’t consider these true operating leases so you can’t deduct the payment (100%). Nothing really wrong with them just remember if your looking for the tax benefits of a true lease your not going to get it no matter what the salesman says!
Loans on the other hand are pretty straight forward. The truck is title in your name, the lender is listed as lien holder. Once you make your payments you own the truck free and clear. Most loan programs require a down payment and you have to have good credit. Also monthly payments tend to be higher than on a lease so that can be a factor if your buying a new semi. The exception to this is if the dealer is offering a program incentivized by the manufacturer you can get really cheap financing. If you have excellent credit and time in business you will want to look out for these.
So what is better, a lease or a loan? Obviously it depends on your objectives. A lease becomes more appealing if your goals are better tax treatment, low down, and more flexible credit guidelines (usually). If owing the asset is important or you can qualify for one of the manufacturer programs mentioned above a loan might be the better option. A phone call to your accountant may be in order. It’s better than getting advice from the salesman selling you the truck.
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