The next big decision that you will be taking is whether to lease or buy your trailer if you are keen on becoming an independent owner-operator. It is essential to set your parameters first before heading out for commercial trailer leasing.
You need to have a vision for what you want from your long-term finances to look like if anything you have is available to put up as a down payment. You need to ensure that you have a realistic expectation for your beginning years of income where you are starting on their own and not likely to hit the “average” salary for an owner-operator. It would help if you worked in even more whether you are using factoring and other options to bring about an improvement to your cash flow.
Purchasing a trailer
Typically, purchasing your truck would be the best way to make a start. You are building equity with every month’s payment, the way you would while mortgaging a home when you are purchasing a truck. You own the truck outright when the payments are made.You have the option of using the equity in it to trade-in for a new trailer whenever you choose, or you can continue to drive it payment-free.
When you are choosing to go with the purchase, you are making a minimum of 10 percent of the purchase price for a new truck and 20 to 25 percent for a used rig, and this is a downside here. For the duration of your purchase agreement, some lenders even require a letter from your carrier, showing that you will be employed at a specific wage.
You will have lower insurance premiums than if you lease when you are purchasing your trucks. If they have no idea of how to play their cards right, there might also be a tax advantage for those owning their own trucking business.
You need to ensure that you are committed as this is something that you need to have in mind, including the three to five-year loan.
Leasing a big trailer
The way you are renting an apartment, you can take leasing the same way. You do not own the trailer at the end of your lease term as you do not build equity with your payments. You are purchasing the truck outright as you usually have a buy-out price at the end. When it comes to the buy-out option, it is a large amount of payment that is predetermined when you have signed the agreement.
You are agreeing to some rules and regulations for keeping the truck in good condition when you turn it back in when you are involved with a trailer lease. Just like a personal vehicle, some of the terms might even restrict your mileage while you are paying a predetermined cost every mile.
Several maintenance costs are covered by the lessor. Since they own it, they want that truck back in good shape.
Additional Advantages of Leasing Trailers
- You will be writing-off your trailer payments as a pre-tax expense, assuming that you will be able to procure an operating lease when you decide to go for commercial trailer leasing. When the tax season arrives, you will be able to save considerable sums of money. You only have to deal with fixed payments over a fixed term, and this is the other benefit of leasing a trailer.
- Leasing will also allow you to plan and manage a monthly budget that you know you can handle well for the foreseeable future instead of worrying about the interest rates that are suddenly spiking unexpectedly, and this is one of the most significant advantages of fixed payments.
- When the leasing company underwrites a submission file, they will be looking at several factors that would go beyond a credit history check, including industry experience and asset type that would allow the borrowers to have a lot more opportunities to obtain financing that is required by them.
- You are also heading for short-term savings. Your monthly installments will be less than what is given in the purchase agreement, as you usually will be paying less upfront. If they are new to this industry and want to experiment on something, then some drivers prefer to have the flexibility of turning the truck in and getting a new one.
- The agreement in leasing is usually for three to five years, and you can actually back out of a deal before the end of the term. In case when their plans do not work out for a complete three years, then beginners will usually go with leasing. It would be best if you also have in mind to set aside some money in case you have the penalty for paying while breaking out the lease term.