The trucking industry is the core of transportation of goods across the United States and beyond. While investing in these monster-sized vehicles can be lucrative in the long-run, they can cost a pretty penny upfront. The average yearly cost of operating a truck is currently set at around $180,000 according to The Truck Driving Institute. The great debate of “buying vs. leasing” is quite common in the car industry, but the same uncertainty exists for trucking prospects.
Whether or not you buy or lease, you’ll have some real wins and real drawbacks to consider. Some truck owners even employ both options to boost the productivity of their business. Key factors such as insurance, financial preferences, and risk management determine whether a prospect should buy outright or simply lease.
Let’s break down the PRO and CONS of both options.
Leasing Your Truck
PROS: The leasing model enables you to gain access to the vehicles and equipment without making the full payment of the total cost. You are financing the depreciating costs of the vehicle. Leasing provides you with the advantage of a lower down payment. You are expected to meet a monthly payment, similar to an apartment renting model. A huge advantage of leasing is the insurance policy. A leasing company’s insurance will cover expenses that would otherwise be a financial burden, like routine maintenance and basic repairs. This is a major plus for many because you will not be held completely liable for the truck. Not being required to break the bank on repairs frees up your coins for other things!
New technology replaces old models quickly. Leasing offers the benefit of driving newer models with better functionalities as often as you’d like. A better fleet of trucks will always provide a smoother driving experience.
CONS: Finding a lease-to-own arrangement in the trucking industry is tougher to come by. Typically, you do not own your vehicle after the leasing period ends. After years of making hefty payments on your truck each month, your rights to the vehicle are waived. Because trucks are such huge financial assets, selling them is an easy way to rack up a large lump sum of cash when you need it. The option to sell does not exist with leasing.
Truckers are also bound to the restrictions imposed by leasing companies just as tenants have to play by the landlord’s rules. Another drawback worth mentioning are the mandatory charges you’ll be hit with if you to choose to end the lease before the date outlined in your agreement. In this case, you’ll be required to continue paying a monthly fixed amount on a vehicle you don’t own or have in your possession. Lastly, the mileage factor is another drawback. Much like leasing a car you are capped out at a number of miles per year. There are fees and penalties if you past that threshold. In an industry like transportation of goods, overdriving is easy to do!
Buying Your Truck
PROS: Owning a fleet of trucks and the hardware and equipment needed to maintain them is a commitment but can be a great financial strategy. The ability to leverage your vehicle as a financial asset is invaluable. Buying means that you can sell or even rent out your vehicle at any time. In some cases, insurance loan packages for purchasing trucks are even more affordable than lease packages. Owning also offers you the ability to modify and customize your truck as you see fit!
CONS: There are disadvantages that may outweigh some benefits of the ownership for some. With new models surfacing each year, your fleet may feel obsolete sooner than you think. Additionally, loan companies often demand huge down payments to own trucks outright. The interest rates on loans increase with time as well. To top it all off, owning large fleet of trucks will constantly require routine maintenance and repairs. With larger down-payments in place, justifying these costs is a deal breaker for some prospective owners.
Still stuck on which direction to take? Seek advice from professionals! At SRFM we’ll help you assess risk the risks and get you on the road too!
Jonathan Belek
Risk Management Consultant
jbelek@srfm.com
