Lease or Buy: What You Need to Know
Whether you’re filling out a fleet of trucks or searching for a one-time acquisition, there are several factors to consider when determining if a purchase or leasing agreement is most advantageous. Fleet managers might make the decision based purely on the black and white financials, but there are other reason other than price tag that sway the decision. From changes to the transportation and truck manufacturing industry to the day-to-day struggle of retaining qualified service techs, there’s a whole lot to consider.
At Palmer Trucks, we’ve been seeing owners and operators paying more attention to the decision between leasing and outright ownership. It can be a whole lot to deal with! That’s why we’ve put together this short guide to help our customers arrive at a decision that’s right for them and their operations. Read on for more information or head into one of our locations in Indiana, Illinois, Kentucky, and Ohio.
Leasing
There are two basic types of leases for trucks: open-ended and close-ended. Open-end leases start with a minimum lease term and allow for additional month-to-month options afterward. Closed-end leases use a fixed term and monthly payments. Excess wear and tear on the vehicles or exceeding a predetermined mileage limit can lead to penalties.
As for the benefits of leasing, a lot of it comes from financial efficiency and the preservation of capital. Leasing agreements offer lower monthly payments than financing to own a vehicle. This allows a company to save liquid capital compared to buying a vehicle outright. That means a newer fleet of vehicles without crunching a budget down to the penny.
The savings continue when it comes to visits to the repair shop and the gas pump. Leased vehicles tend to be newer, which means both that they benefit from increased fuel economy from improving technologies, but they also start in a better state of repair and are less likely to be worn down by use. As a result, your fleet can have greater vehicle uptime, lower maintenance expenses, and lower fuel costs compared to your older fleet vehicles.
Leased vehicles can also be replaced more often than buying, which only adds to the above benefits since you’ll be seeing that increase in technology at the end of each lease term. Additionally, a bonus for all the fleet managers out there is the decreased level of paperwork and administrative tasks involved with leased vehicles. Since you don’t own the vehicles, your company name is not on the title, registration or property taxes owed. Tasks like tag and license renewal, payment of title retention and property taxes and so on are up to the leasing company.
Buying
Perhaps the primary benefit of buying fleet trucks outright is the overall control and lack of limitations. You won't have to worry about wear and tear on the vehicles in terms of violating a leasing agreement, and there’s certainly no mileage limit. While that’s extra responsibility, it’s a lot of flexibility and power as well. This also allows you to end a vehicle’s service should it prove to be less than a performing member of the fleet, rather than wait out a lease term.
There are price benefits as well, though they aren’t always associated with a lower initial price point. However, you can use repeat business, referrals, and other contextual specifics to negotiate for lower prices or better deals in the future. Also, small to medium sized fleets purchasing vehicles from large national fleet dealers may be able to receive enterprise-sized fleet pricing.
You can also gain a few tax benefits and exceptions.Your vehicle’s value will depreciate over time, but the deductions can be used to help offset profits. In leasing, the depreciation benefit remains with the the leasing company. You’ll also just have better control over the long term value of the vehicle, whether that be in the form of preventative maintenance or more attention when looking to offload or resell the vehicle.
Finally, buying a truck builds equity that can be recouped in a later sale or simply by increasing a company’s overall worth through assets. This equity can be reinvested back into a company, while payments for a leased vehicle are completely eaten up by the lessor.
There are pros and cons to leasing and buying commercial trucks. The important thing to remember is to think in terms of what’s best for you and your operation. While there might be a lot of appeal in going one way or the other, the main factors should be based on research and experience. If you’re still having trouble decided, don’t hesitate to stop by Palmer Trucks at one of our locations in Indiana, Illinois, Kentucky, and Ohio. Come in today and talk with our team of professionals who are ready to answer your questions and help you find what you’re looking for.