To buy or to lease? That is the question. Each business owner and manager is responsible for making the smart financial decisions necessary to keep the business thriving. Whether you're establishing your first business fleet or building out an existing fleet, there is a single very important question to ask yourself.
Is it better to buy your trucks and slowly pay off the loans or to lease them as-needed with the added benefits of maintenance and fleet management services?
For most businesses, the decision really comes down to cost. You know the costs of buying a vehicle. But what are the costs associated with leasing a commercial truck or fleet of work trucks? Today, we're here to provide some of the answers you're looking for and help you find the answers specific to your business and fleet needs.
The Cost to Lease a Commercial Truck
Leasing is often chosen by businesses looking to put a commercial truck or fleet into use while keeping monthly overhead low. In most cases, the monthly cost of a lease is significantly less than what you would pay in loan installments after buying a vehicle outright.
However, the exact cost of commercial truck leasing will depend on the size, model, and age of the truck you're looking to lease, along with any added features or services included in the leasing contract.
Average lease prices can range from as little as $300 a month for smaller trucks and low-cost cars and can extend over $1,000 a month per vehicle for large, luxury, or semi trucks. Don't let this discourage you. Chances are that the cost of leasing is lower than purchasing, and lease-to-own deals balance out the benefits of both.
The Cost of Commercial Vehicle Insurance
As any savvy business owner knows, the cost of the lease contract is only the beginning of your calculations. For each vehicle you choose to lease, there are a number of smaller additional costs and among the most important is insurance.
Commercial vehicle insurance is different from personal auto-insurance because you must cover driver and business liability with somewhat different coverages.
Commercial vehicle insurance covers a wider variety of vehicles, offers higher liability limits, and there is (usually) no limit on the number of vehicles that can be added to your plan.
Commercial vehicle insurance can easily overshadow the actual cost of your lease. The average cost of commercial auto insurance is between $800 and $1,200 per month, per vehicle.
However, this cost is also something that would be identical whether you bought your truck / fleet outright or chose to lease instead.
The Cost of Fuel and Routine Maintenance
The next aspect of your leaded commercial truck expenses will be fuel and routine maintenance. Again, responsibilities and costs you would need to handle with or without a lease, so include these numbers in both halves of your comparative calculation.
You can roughly estimate the amount you'll need to spend on fuel each month with a quick equation. Start by dividing your average number of miles in a daily route (daily_miles) then divide that by the truck's gas mileage (mileage).
Multiply the result by the local gas price per gallon(gas_price), and you've got something resembling your potential monthly gas costs.
For the visual minded, that's:
Monthly Gas Cost = (daily_miles/mileage) * gas_price
The cost for routine maintenance is easier to calculate if you already have a maintenance routine that will be extended to the new vehicle or fleet of vehicles.
The Reduced Cost of Leased Vehicle Maintenance
However, in many leasing contracts, you may find that maintenance is included or provided at a discount for leased trucks and fleet vehicles. In this way, leasing can not only reduce the cost of your monthly payments for vehicle use, but the leasing service can also reduce the cost of your regular maintenance and occasional major repair needs.
This is in the best interest of both you and the leasing service. The leasing service can be confident that vehicles are still in great condition and remain that way throughout the duration of the lease.
While you get to save money and peace of mind, confident that your vehicles will remain in the excellent condition they were in the day the lease was signed.
The Benefit of Zero Debt Load for Work Vehicles
Another serious consideration of leased vehicle costs is your company's debt ratio. Buying vehicles with loans and then paying off the loans features both a higher monthly overhead and a serious hit to your debt ratio.
There are many ways to save money and create opportunities for your business with a higher credit score, which is exactly what you'll get when leasing rather than buying vehicles. A vehicle loan, or collection of vehicle loans, will weigh down your debt ratio, company credit report and FICO until the debts are completely paid off.
However, a lease can allow you to get a commercial truck or fleet out on the road doing good work without taking a hit to your credit score. With lease-to-own deals, you can even start putting in equity on the trucks and eventually own them, all without having to take out a loan or impact your company credit report and FICO score.
Commercial Lease Payments are Tax-Deductible
Finally, there are taxes to consider. When you purchase a commercial truck, you may deduct the interest of the loan. With leasing, however, you can deduct the entire cost of each leased month from your business taxes and use this to lower your overall tax burden.
Vehicle leasing is considered a deductible business operating expense, and therefore is a legitimate addition to your business tax deductions. In this way, commercial truck leasing can save you a bundle on monthly expenses going in (lower monthly cost compared to loans) and going out (tax deductions on lease costs).
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Leasing a commercial truck or fleet requires some serious consideration of the costs involved. Not only is there the base-cost of the lease, but you must also consider insurance, maintenance, debt ratio, and taxes. Leasing can reduce the cost of monthly payments and maintenance while eliminating the debt ratio penalty and alleviating your taxes.
But the true cost calculation is unique to each business and fleet. For a consultation and quotes on the exact price of the commercial trucks you wish to lease, contact us today. We'll be happy to help you build a detailed estimate for the exact fleet specifications you need.
