Leasing a truck doesn’t mean that you are throwing away your money and neither does it mean that it is the best option for you. What works for one business may not work for you.
The best way to find out if leasing a truck is truly the best option for you is to find out what the pros and cons are. From there, you can weigh between the two and decide if leasing will be beneficial to you. You should also consider other options of acquiring a truck for your business such as applying for a bank loan or purchasing. Let us take a look at some of the pros and cons of leasing a truck.
Pros And Cons Of Leasing A Truck
One of the benefits of leasing is that you will be able to preserve your line of credit and have much more cash at hand because in most cases, you will not need to make an upfront investment. You can use this money for other investments and operation expenses.
Different truck leasing companies have different requirements for you to qualify for a lease although most of them offer closed end and open-end leases. Closed end leases have restrictions relating to tax fees, increased liability, maintenance expenses, maximum mileage usage, etc. However much this option seems to be very restrictive, it is actually very beneficial to companies that have planned and specific usage parameters for their vehicles. You can also take advantage of the fact that you will not have any obligations at the end of your lease period.
An open-end lease is the exact opposite of the closed end lease. It does not have limitations on mileage, has no penalties on wear and tear, and has no penalties for early termination of the lease. This is where a company can enjoy cost savings as compared to buying a truck and incurring costly maintenance and expenses.
Another benefit of leasing a truck is the willingness of some leasing companies to participate in fuel management programs that help with preventative maintenance, potential discounts, and odometer readings.
Actual care expenses and standard mileage rates are some of the available tax write offs that you can enjoy when you lease a truck. Tax write offs vary according to expenses, vehicle use, number of vehicles used and loan vs. lease financing.
There are two types of leases available when leasing a truck: a capital lease and an operating lease. You should work closely with your accountant to determine what the best lease option for you is. With an operating lease, you will only be paying for the right to use the vehicle and you will not have ownership at the end of the lease. This means that your vehicle will be considered an operating expense and will not be included in your balance sheet. Unfortunately, you will not be able to claim interest or depreciation as you would in a capital lease. A capital lease typically allows a lessee to have part ownership of the truck.
Leasing gives you a variety of end of lease options. If you prefer to own the truck at the end of your lease as compared to returning it, then this is an option that you could discuss with your lessor. This could be a great option for a company that prefers to have a new truck occasionally in order for operations to run smoothly.
Another option is to purchase the truck at $1 at the end of the lease. Alternatively, you can purchase the truck at fair market value. This of course depends on the type of lease agreement that you signed.
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One of the disadvantages of leasing a truck is the fact that you may encounter hidden costs. Some of the costs include early return fees, early termination fees, mileage overrun costs, repairs, key replacement, etc.
The good news is that these negative aspects of leasing a truck can easily be mitigated by ensuring that you avoid some of the financing mistakes that many business owners make. For one, you can avoid making these mistakes by familiarizing yourself with how to finance a lease agreement. Secondly, you can always seek the services of a trusted lawyer or advisor who can help shed light on some of the key aspects of your lease agreement to avoid getting into dubious deals. Moreover, your advisor can help to negotiate a better deal for you based on their expertise and knowledge of the industry.
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