It’s a practical question being asked by small businesses and owner-operators. To be fair to both options: you have to take care of the truck, maintenance, repairs, and all regardless of whether you own it or lease it. Nevertheless, each option has its perks and quirks, which you will know more about below.
Cost of Ownership
When you buy your truck using a loan or even in cash, it’s yours. You’d be responsible for the full cost of the purchase and the loan as well. Factor in maintenance costs that include maintaining staff. Your down payment will help determine how much you’ll pay on a monthly basis, which could go higher than that for a lease.
Why? Because a lease payment only covers your use of the vehicle during the relevant period. At the onset of your lease term, you may be required to make your first lease payment, a security deposit that could serve as your final monthly payment, additional down payment, etc.
When your lease term is up, you will return the vehicle to the leaseholder/owner and pay whatever costs that are due and owing, such as:
- Excess mileage fee. There is a fee when you drive beyond your maximum mileage limit. And, the fee could be per extra mile.
- Damage fee. You have to pay for any damage to the truck, e.g. scratches to the bed, upon its turnover.
- Early termination fee. If you terminate your lease before its expiration date, you would be slapped with a hefty fee.
As long as you’re bound to the contract term, you would be responsible for the truck’s regular upkeep, including insurance costs and taxes.
You obviously can’t build equity when you’re a lessee. While others would argue that truck ownership can result in a decline in equity, this equity can still be used when you do a refinance or a trade-in. Moreover, you can sell the truck to buy a new one after the loan term ends.
Considerations Related to Tax
For small businesses, buying or leasing a truck has tax implications that they ought to consider.
If you opt to purchase the truck, you could use Section 179 of the Internal Revenue Code to recover a part or all of the purchase price, which is a qualifying equipment.
If you plan to lease the truck, know first the two main types of leases for tax purposes:
- Capital lease lends a small business the right to use the truck, including the risks and benefits associated with owning one. It may be purchased at the end of the lease term, at a discount. The interest portion of the lease can be deducted pursuant to Section 179.
- Operating lease gives a small business the right to use the truck within the lease term. Upon expiration of the lease, the vehicle is returned to the owner/leaseholder. Payments on operating lease can be written off as an expense.
All things being equal, leasing a truck is a go if you can’t afford to buy one or make a down payment. You also want to drive a new vehicle every two years or so, within the usual stipulated 12,000 to 15,000 miles per year.
Buying a truck is for you when you want to keep it, trade it or even customize it. You also put in more than 15,000 miles a year and can pay for post-warranty repairs. If you have bad credit, then a loan may be easier to obtain than a lease. Our lenders can help you.»