July 30, 2015
Three Things You Need to Know About Lease Agreements
Updated: September 13, 2019.
Understanding lease agreements can be confusing. If you’re considering becoming an independent owner operator or want to purchase your own semi truck, you should know what you’re getting into.
In simple words, the term lease means paying a fee to use someone else’s equipment. When leasing a truck, the leasing agreement can be for years or month by month. Depending on the lease, you may give the truck back after your contract is over or choose to purchase the equipment.
There are three different types of leases, especially in the trucking industry:
- Lease purchase or lease-to-own
- Lease program
- Lease on to a carrier
Each one means different things for your trucking company. Here’s a brief overview of each option and their advantages and disadvantages.
Lease Purchase or Lease-to-Own
Some trucking companies have a lease purchase program that allows the driver to use a truck for a set monthly payment with the option to buy at the end of the contract. Many drivers use this program if they want to become an owner operator but don’t want to invest their own money right away.
Because it requires no money upfront, drivers tend to enter this program if they have poor credit or don’t have money. Once the contract ends, they can purchase the truck for the agreed amount.
However, it’s important to read the fine print on contracts like these because even if the monthly payment is low, you may still be held accountable for maintenance costs and repairs, which can quickly add up.
Just like you can lease a car, you can lease a truck from a company or dealership. Like lease purchases, often times you don’t need to put any money down or have good credit. Unlike lease purchases, you don’t intend to buy the truck. Once the contract is up, the trucking company can lease you another truck that is new or like-new.
For both lease purchases and lease programs, you and the trucking company will go in with intention and a contract. After you enter into the program, you are treated as an independent contractor/owner operator. However, there are some rules and regulations you should consider to determine whether or not you want to be treated as an owner operator. Some rules you may run into are:
- You may need a guarantee in place from a trucking company that you will be hauling freight for before the dealership will let you lease a truck from them.
- You might need a downpayment.
- There may be certain credit requirements.
There are finance companies that specialize in truck financing that may have easy qualification requirements. Unfortunately, the interest rates will be higher and you may end up paying a lot more than the truck is worth. However, the monthly payments are sometimes lower with lease programs. According to CostOwl, monthly payments for these plans can range anywhere between $800 and $2,500.
Should I Lease or Purchase a Truck?
Ultimately, the leasing decision is up to you. For any program, you need to make sure you are committed to trucking. Because you are signing a legal document to put out a lot of money for a few years, you need to be passionate about the career.
If you’re looking to purchase instead of leasing your truck, we have a number of resources you can use to help you find the right truck. Our podcast Haulin Assets has a few episodes that can help. Episode five is all about purchasing a truck and episode six covers how to finance it.
As part of our podcast, we’ve created a spreadsheet that can help you get the most out of your purchase by picking the right truck. Definitely check it out if you’re still considering all your options!
Lease On to a Carrier
The other two programs provide you with the truck, but this option is available for those who already purchased their truck. The relationship between you and the trucking company that you’re affiliated with is referred to as “leasing on.”
Unlike the other two options where you lease to get a truck, leasing onto a carrier means you are providing your services and truck you already own to another trucking company. By leasing it on to a carrier, you are making an agreement to render the service of your truck to haul freight for the company.
If you choose to lease on a motor carrier, then the motor carrier often:
- Handles most of the paperwork
- Handles fuel tax
- Finds freight for you and provides dispatching services
- Arranges insurance
- Often provides maintenance at their shop
Something else to take note is that some upfront expenses can be taken out of your settlement spread out over time.
How Do I Get Started?
If you want to know the next steps of leasing a truck and becoming an owner operator, give one of our coaches a call at 1-866-739-2032. It’s completely free to talk to them and get the steps you need to take to become an independent owner operator and start your own trucking company.