When becoming an owner operator, one of the toughest decisions you will have to make is whether you should buy or lease your big rig. It is an investment no matter which way you look at it. Therefore, it is a good idea to weigh the pros and cons beforehand.
First, you should make sure your finances are in order. Knowing how much you can afford as a down payment is a start. Additionally, having an idea of what your long-term finances will look like is also important. Particularly because it is unlikely for first year owner operators to hit the average salary mark. Therefore, having real expectations of your finances and cashflow is crucial in the decision-making process. However, let’s go a bit further.
Purchasing a Big Rig
When you look at purchasing a big rig from a financial standpoint, it makes sense. It should be noted that buying a truck allows you to build equity with each monthly payment. In addition to the equity you build, once the truck is paid off, you have the option of keeping it, or trading it in for a newer big rig.
On the other hand, purchasing a big rig is costly. Typically, you are required to put down 10 percent for a new truck, and between 20 to 25 percent for a used one. Additionally, some lenders may request employment verification to ensure your salary for the duration of the purchase contract.
Furthermore, you will receive a lower insurance premium when you purchase as opposed to leasing. However, also keep in mind that loan agreements usually last between three to five years, so make sure you are committed to the purchase.
Leasing a Big Rig
Unlike purchasing a big rig, when leasing you do not accrue equity with your payments. Additionally, you will not own the truck at the end of your leasing agreement either. However, you will be given the option to buy-out the rig, which is typically a large lump sum.
Moreover, there are certain rules and regulations you must follow in a lease agreement. The truck should be kept in good condition as you will likely be turning it in at the end of the contract.
Nevertheless, an advantage of leasing is you will generally pay less up front regarding the down payment. Your monthly payments will also be less than a purchase agreement. Also, many truckers like the idea of turning in their truck at the end of their lease for a new one. However, if you plan on driving for years to come, purchasing will save you more money in the long run.
Lastly, it is important to note that should you break a lease agreement that you will be subjected to penalties. So, be sure to read the fine print.