Lease vs. Loan: What’s The Best Way To Finance A Big Rig?

When purchasing a new truck or trailer, you’re often faced with the question of whether to lease or purchase the truck or trailer.  Depending on your intended use, long-term goals, financing incentives, and tax situation, one method may be more favorable than the other.

What’s the Difference?

In short, a loan is borrowing money to purchase equipment, a lease is a long-term rental agreement with fixed term pricing.

Diving in a little deeper, a loan provides immediate stake in ownership of the asset, in this case, commercial equipment, and the asset is generally assumed as collateral for the loan, and the interest on the loan is based on Prime plus any risk-based calculated percentage based on borrower credit.  At the end of the term you own the asset, or if selling before the term is up, the balance and possibly an early-pay penalty (depending on loan structure) is due before the title is released.

With a lease, one typically will have a deposit and fixed lease payment and duration, and generally these payments are lower than a loan payment, making them more attractive in low cash-flow situations.  Some of the risks are the terms accompanying the lease, such as mile restrictions, above normal wear and tear/end of lease condition of the vehicle, and possibly more restrictions on when and where the equipment may be serviced.  Traditionally, at the end of a lease term the equipment is either returned and account settled or offered as an off-lease purchase to the lessee.

Which is Better?

That depends on your situation.  If you’re able to make a larger deposit up front to reduce monthly bills, taking an ownership stake of the equipment through a loan might be a better method.  Often big rig financing companies provide different options for early payoff and flexible payment arrangements—it never hurts to ask.  Leases, on the other hand, can be attractive for new owner-operators who don’t have a lot of capital to invest in their first truck and trailer, therefore foregoing the equity in exchange for a lower deposit and lower monthly bill is appropriate.

At the end of the day, finding a truck financing company who understands your needs and can answer your questions thoughtfully will provide the most value and place you in an appropriate financing solution, putting you on the road to success.