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Should you buy or lease your truck?

truck on raod

Running a transport business can feel like endless calculations of expenses VS profit, of pros VS cons. One of the toughest conundrums one might face is choosing between buying a truck or leasing one. So let’s settle the deal once and for all. Should you buy or should you lease a truck? We’re here to help you with this quick guide.

Leasing your truck

When you lease a truck, monthly payments go towards your use of the truck, not its ownership. This amount is usually lower compared to when you are buying a truck. Speaking of costs, there are a couple of charges you need to be aware of, like your down payment, first payment, security deposit, licensing, registration, taxes and, processing fees among other things. However, you can still claim tax deductions and lease charges on GST.

Maintenance

The whole lease term is covered by the truck’s warranty which means you don’t have to pay for some repairs. But you are responsible for regular upkeep such as oil changes and maintenance of brakes, tires. You can also get a new vehicle once the contract ends. If it’s short-term, it’s unlikely you’d have damaged it so much, so the cost would be less.

End of the lease

Lease terms come with a mileage limit. Before getting into the contract, you can buy extra miles for less. Many are advised to calculate their miles in advance instead of paying the excess for a higher price. If you need to terminate the contract early, you have to pay a fee that isn’t cheap.

Lease Options

  • Operating lease – These contracts last for three to five years usually. You have full use of the truck while it still belongs to a company and your rental payments wouldn’t be reflected on your balance sheet.
  • Finance lease – This is similar to an operating lease but with this, you have the option to buy the truck in the end. The benefit is that you spend less on taxes. However, it is not an asset to you because it did not build equity under your ownership.

Pros:

  • Choose a different model every time the lease ends
  • Use a model that’s too expensive for you to buy
  • Vehicles are always covered by a warranty
  • Might get tax deductions (depending on where your state is)
  • No need to negotiate when you’re selling or trading-in your vehicle.

Cons:

  • Has limited mileage
  • Expensive early termination of the contract
  • No equity under your ownership

Should you lease a truck?

Business owners like the tax benefits of leasing. If you’re sure you won’t exceed the 12,000-15,000 mileage limit and that you won’t damage the truck, then this is the best deal. Most of all, leasing a truck is more affordable, because the down payment and repayments are low.


Buying a Truck

The biggest advantage for those who buy trucks for business is that they can claim depreciation and interest payments in their tax. Loan repayments are higher compared to monthly payments of lease contracts. If you give a high down payment or trade-in a vehicle with a high value, then it can lower its amount. Once you complete payment, you have full ownership and continue building equity.

Maintenance

A study showed that 87% of business owners look at the cost of the truck’s maintenance before buying it. It’s important to calculate whether it is affordable to keep it in a good condition. You can only get a good price for it when you sell or trade it in if it has been well-maintained.

Options

  • Chattel mortgage – The truck will be used as a security by the lender. However, you can use the vehicle right away and get its full ownership once you’ve paid off the loan with interest.
  • Hire purchase – You can have the truck right away, but you will only have ownership once you pay the loan in full. Buying a vehicle this way can get you tax benefits with the help of a finance officer.

Pros:

  • You build equity for your business
  • No restrictions on the truck’s modification
  • You can go over 15,000 miles
  • It can be traded in before two years
  • Those with credit problems can take out a loan to buy a truck

Cons:

  • Initial spending (registration, insurance, stamp duty, etc.) and monthly repayments for the loan are higher by about 30% – 60% compared to what you pay when you lease.
  • When a vehicle depreciates, it’s possible that it will be worth less than the amount the owner still owes for the loan.
  • Maintenance will cost more when the warranty is over.

 

Should you buy a truck?

Buying a truck results in having high repayments. You need to have enough budget for its cost and its upkeep when the warranty expires. But you end up with a truck that is a good asset for business. Lastly, you have the freedom to use and modify it as you please unlike when you are leasing.


Finance Ezi

Still, haven’t figured out the best option for your business? Finance Ezi can give you expert advice on both truck leasing and other service vehicle purchases. Call us on 1300 003 003 for a free consultation and we’ll help you move your business along.

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