So which is the best option for your haulage business; should you lease trucks or just buy outright? It’s a tough choice I understand but I hope after reading this analysis, you will be able to make a decision on the most suitable option for you.
Leasing a truck can be compared to renting a house, you continue to pay rent for as long as you live in the house but the house isn’t yours. That’s basically what leasing a vehicle is about, you get to use the vehicle for a period and pay for its use but the ownership of the vehicle is not transferred to you. The vehicle continues to remain a property of the company that issued the lease- the lessor.
In the lease agreement, the length of the lease would be specified and It could be anywhere from two to three years or even for longer periods of time. You (the lesser) are obligated to continue to make payments monthly for the use of the truck for as long as the lease period lasts. You may also choose to terminate the contract before the period expires but to do this, you would need to pay a fee known as “early termination fees”. You may also be required to deposit some money as security in case there is any damage to the vehicle.
Leasing a truck for your haulage business has some benefit even though you don’t get to own the vehicle at the end of the day. Some of the benefits of truck leasing include-:
5 Benefits of Leasing Trucks for your Trucking Company
a. Cheaper-: Truck leasing is especially useful and convenient for the people who are starting out their businesses with little capital. The initial outlay required to lease a truck is significantly lesser than the cost of buying a truck. This means you could easily start your haulage business on budget and have some extra money to do other things.
b. Flexibility-: When you lease a truck, you don’t have to make any long term commitments. You can simply decide that you want a truck with higher capacity tomorrow or opt for a truck with better engine. If you find out that the truck you are leasing cannot serve your business perfectly, you can easily terminate your lease agreement and go for another truck that serves you better. Leasing makes everything smoother and easier for you when it comes to accessing the right type of trucks for your business.
c. Freedom of Choice-: If you were to buy a truck for your haulage business, there would be some trucks that you like and know would be more suitable for your business but you have to stay away from because of the price tag. With leasing, you have a better freedom of choice. You can choose any vehicle you want and have access to cheap monthly payments for your dream truck.
d. New trucks-: A lot of haulage businesses owners go for used trucks but used trucks are not always the best for this business. Used trucks are more likely to develop faults and are costlier to maintain than new trucks. However, you can’t blame them because most of them choose used trucks because they cannot afford new ones. With truck leasing, you can choose a new car for your haulage business without having to break the bank and when it develops some faults, there is the factory warranty provision to cover for it; thereby helping you to significantly reduce the costs of running your business.
e. Tax advantages-: Leasing a truck is also better for your business tax-wise. You can make some significant tax savings when you lease a truck compared to when you buy a truck.
However, leasing a truck for your haulage business has some disadvantages. Such as-:
5 Disadvantages of Leasing a Truck for your Haulage Company
1. Expensive-: Yes I mentioned “cheap” as one of the benefits of leasing a truck but that is subjective. Leasing a truck is also expensive because after paying monthly installments on the vehicle, you end up returning the vehicle to the lessee and because the car doesn’t become yours at the end of the day, it’s costlier than outright purchase.
2. Branding & Modification-: One of the ways to brand your haulage business, so as to stand out from the crowd is by branding your truck. Unfortunately, you may not be able to do this when you lease a truck. Also, you cannot modify the truck to suit your needs and desires and sometimes, your use of the truck may be restricted.
3. Lack of equity-: When you lease a truck, you have no equity in the truck. If you purchase a truck outright, you may be able to sell off the truck after sometime and use the money to buy another truck but this is impossible when you lease a truck. You have to start from the scratch.
4. Mileage-: In your lease contract, the specific mileage expected to be covered would be stated and if you exceed this mileage, you would be charged exorbitantly for the excess mileage but if the car belongs to you, you won’t have to worry about mileage. You can use your truck however you like and drive it to wherever you desire.
5. Complex process-: Leasing a vehicle is a lot more complex than it sounds and sometimes, people find themselves caught up o the wrong side simply because they did not understand something about the agreement they were going into.
Verdict-: If you considering going into haulage business for a short time; or maybe you just want to ‘test the waters’ to see if the business is as profitable as they say; then you can consider leasing for a short term. It offers you flexibility so that you can ease in and ease out if you find out that things are not so green in the industry.
But if you have really made up your mind to go into haulage business, then buying outright would be the smartest option for you. I am sure that you can find financing options that would allow you to pay in installments just like when you lease a truck albeit this time; the truck would be yours for keep!