A semi-truck is an expensive toy. You can expect to pay around and more than $40.000 for a reliable used semi-truck.
However, if you've decided to become an independent owner-operator, you'll need to obtain one.
If that is the case, your next big decision is to weigh the pros and cons of leasing a semi-truck instead of buying one. And to make a correct decision in this situation, you need to be aware of your current financial situation and have a clear vision of your plans in the trucking industry.
So, if you are trying to understand whether or not leasing a semi-truck is a good option for you, you are in the right place.
Below, I'll share the general pros and cons of leasing a semi-truck.
What is leasing a semi-truck?
A lease is a contractual agreement in which a leasing company (lessee) allows a customer (lessor) to use its equipment for a specific length of time (lease term).
During that time, the lessor pays the lessee a set amount of money at specific times (usually monthly). At the end of the lease term, the lessor can:
- return the equipment
- continue leasing
- buy it.
The specific arrangements are all set out from the very beginning of the lease agreement.
What are your best options?
If you are new to the trucking business, continuous leasing is probably the best option for you.
While continuing to work as a company driver, you'll save money and you'll improve your credit score. Though, this is the slowest option, yet it's the most financially sound way of getting into trucking business. This arrangement gives you time to learn about the ins and outs of the industry and to decide for yourself whether trucking is for you or not.
Before we dive in the pros and cons of leasing a semi-truck, I must say that leasing requires a deal of commitment and experience. Do not attempt acquiring a trailer truck through leasing until you have at least 2 years of driving experience under your belt.
The reason is that you need to know the ropes. You need to give yourself the time to understand the industry.If you are an established owner-operator who wants to increase his fleet of bobtail trucks, any of the three options are fine depending on what are your plans for growing your company is.
The pros of leasing a semi-truck are:
1. Lower upfront cost
For many, buying a truck outright is expensive. And if you have less than perfect credit, you might not be able to get a loan at all.
In that situation, leasing may still allow you to get a semi-truck by putting little to no money down.
That means that you can have your truck sooner than gathering money for months trying to qualify for a loan.
2. Shorter commitment
If you're new to the trucking industry, chances are that you may want to switch career paths in a short while.
In that case, buying a semi-truck right away may have you go through the challenge of selling it.
On the other side, leasing a semi-truck is far less of a commitment because you can still use a semi-truck and learn the different aspects of the business without paying the full price of it.
3. Fixed and predictable payments
Lease payments are generally fixed and predictable and there may be some tax advantages.
Independent leasing companies allow you to choose an option that is most suitable for your needs.
For instance, if you anticipate small returns at the beginning of the lease term, you can choose an option that allows you to make small payments.
Later, you will still be able to step up your lease when you begin to realize substantial returns.
The cons of leasing a semi-truck are:
1. Paying more in the long term
In the long run, by leasing to own a semi-truck, you may end up paying more than you'd have bought the semi-truck outright.
2. Limited modification option
Since you use someone else's equipment, you might not be able to upgrade the technological features as often as you want because the modification options for the leased truck are limited.
On top of that, it could cost you more if the dealer requires you to get extra insurance to protect their investment.
3. Lease agreements can be tricky
Before you sign the lease agreement, read and examine it carefully.
When you lease the semi-truck from the company you work for (if you are not an owner-operator), you might not be eligible for health benefits.
Or, the company might deduct the cost of the leased truck right from your paycheck. This doesn't mean anything horrible as long as you know what you get yourself into.
Or, you might need to stay within specific mileage limits.
Or, you might need to take steps to ensure that the condition of the truck is good enough when you trade-in.
Or, if you decide to break the lease agreement early, that might result in a fee. In the long run, by leasing to own a semi-truck, you may end up paying more than you'd have bought the semi-truck outright.
4. High cost
If you lease the semi-truck as a self-employed contract driver, your expenses will be higher than they ever were as a company driver because you'll have to fix anything that goes wrong with the truck.
You will take responsibility for all damages and maintenance costs of the truck as well as health insurance and taxes.
5. You are tied to one single carrier
With very few exceptions, you're most likely tied to one carrier and cannot switch companies.
Nobody is going to allow to take their truck and go to a different company while the current trucking company are responsible for the payments on that truck.
So, should you buy or lease?
One of the biggest factors to consider when deciding whether you should be buying or leasing a semi truck deals solely with your financial status.