Leasing a commercial truck can offer many benefits, including improving cash flow. However, it is a serious commitment, and the task of choosing a vehicle and understanding the different leasing terms can seem daunting, to say the least. Whether you’re already a fleet owner looking to expand or upgrade your fleet or just starting a new business, the following questions will help ensure you decide on the best lease to fit your business’ needs.
Benefits of Leasing a Truck
One of the most important things in business is ensuring a positive cash flow. Here are five benefits of long-term leasing:
- Avoid upfront costs. Buying a truck typically involves a substantial down payment along with other upfront costs, such as taxes and licensing.
- Reduces ongoing expenses. As trucks age, ongoing expenses of maintenance and repairs become higher. A full-service leasing agreement covers these costs, which are conveniently figured into predictable monthly payments.
- Eliminates hassles. Fleet owners have multiple responsibilities to keep the business running. Add to that the requirements of truck inspections and compliance issues, and valuable time is lost. With a long-term lease, those hassles can be eliminated.
- Enables you to focus on growing your business. In addition to the major costs of purchasing a new vehicle, sales taxes and interest fees will quickly deplete your business’ capital. Leasing allows you to utilize those funds to invest in your business in better ways.
- Enjoy newer equipment. When leasing equipment, it’s possible to trade it in for newer equipment. This helps reduce maintenance costs and keeps drivers happier and safer.
Leasing vs. Renting
Oftentimes, the terms “lease” and “rental” are used interchangeably, but there are a few key differences. The following factors will help you determine which is better for your company.
- How long is the equipment needed? Rentals are considered short-term and are the best option when the truck is needed for a few months or less. On the other hand, leasing is a long-term option with agreements generally lasting for a few consecutive years or more.
- Is the goal to purchase at a later date? If your end goal is to purchase equipment in 3-5 years, then leasing is ideal. Many leasing agreements include the option to purchase at the end of the contract. With this, you are essentially purchasing a 5-year-old truck of which you’re familiar with the history. Plus, a percentage of your lease payments is often applied to the purchase. Regarding renting, the monthly rates are typically higher than leasing, and should you decide to upgrade, a new rental contract is signed.
- What options are you interested in? When leasing a truck, you have the opportunity to specify options including engine, transmission, truck model, and other features. With renting, you’re generally limited to what’s readily available.
Understanding Your Lease Agreement
Prior to signing a lease, it’s important to understand the specifications. Check out the following questions that you should ask before leasing a truck.
#1 What type of lease agreement is being offered?
The two most common types of truck leases include a straight lease and a lease to purchase. A straight lease entails making the specified monthly payments until you return the truck, at which time you can terminate the agreement, upgrade to a newer truck, or purchase the truck for a discounted price. Meanwhile, a lease to purchase is where the payments made throughout the agreement go towards the purchase of the truck. At the end of a lease to purchase, the company may also offer to buy the truck back.
#2 Is there a down payment?
Some lease agreements require a down payment, while others do not. It’s a good idea to determine how much (if any) you can afford beforehand. Also, it is important to note that generally License and Federal Highway Use Tax (FHUT) is invoiced separate from the lease and are passed through to the lessee. So, these costs should be anticipated as well.
#3 Is it a full-service maintenance lease?
A full-service lease covers all major maintenance and repairs of a truck. However, most maintenance plans do not cover accident damage, road hazards, and broken glass. It is important to find out the specifics of what is or isn’t covered.
#4 What are the terms of the lease?
Leasing agreements often range between 3 and 7 years. This depends on the company, so determine the minimum and maximum periods for leasing equipment and figure out what fits your business’ timeline for growth.
#5 Does the agreement offer a loaner vehicle?
Most full-service leases provide a replacement vehicle if you’re facing a breakdown or repairs, but nail down the details before signing on the dotted line.
#6 Are there driver stipulations?
Some companies require that you have a minimum number of years of experience behind the wheel. Likewise, find out the restrictions if you plan to have others (besides yourself) drive the truck.
Know Your Options
Before committing to a leasing agreement, be sure it will meet your needs. One of the most valuable benefits of equipment leasing is taking advantage of the full-service contracts, which help alleviate the stress and worry of repair costs and downtime.
At TCI Transportation, we offer a wide variety of services that include full-service truck leasing and short-term rentals. If you’re still undecided about what will best suit your business needs, contact an expert today.
