July 30, 2015
Three Things You Need to Know About Lease Agreements
Understanding lease agreements can be confusing for someone who is considering becoming an owner operator and to people who are new to trucking. 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.
People are mostly confused by the word “lease” because it is often used in conjunction with another word and each term means something slightly different. However, after reading this, you’ll know what the context is when you hear the word “lease” with the other words or even when it’s by itself. Below are three ways you will hear the word “lease” used as it relates to trucking.
Lease Purchase/Lease to Own
Some trucking companies have a lease purchase program that allows the driver to lease a truck with the option to buy. 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 up front, drivers tend to enter this program if they have poor credit or if they don’t have money.
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 lease is up, the trucking company will lease you another truck that is new or like-new.
For both lease purchase and the lease program, you and the trucking company will go in with intention and a contract. After you enter into a lease program, you are treated as an independent contractor/owner operator. However, there are some rules and regulations that may make you question if you want to be treated as an owner operator such as:
- 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 down payment
- 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.
Lease on to a Carrier
The relationship between you and the trucking company that you’re affiliated with is referred to as “leasing on.” This is the situation when you own the truck and are essentially leasing your truck(s) to a company as an owner operator. The term even applies even if it’s paid for already. It has nothing to do with the description of leasing purchase or leasing programs we have already covered. You are an owner operator who is leasing your service and truck to the motor carrier you are affiliated with. By leasing it on to a carrier, what you are doing is making an agreement to render the service of your truck to haul freight for the company.
To lease on to a company, you don’t need your own authority. However, if you have it and your own insurance, the trucking company will sometimes give you a larger percentage of the pay.
Benefits to leasing on to a carrier include:
- The motor carrier handles most of the paperwork
- The motor carrier usually handles fuel tax
- The motor carrier finds freight for you and provides dispatching service
- The motor carrier arranges insurance
- The motor carrier often provides maintenance at their shop
- Some up front expenses can be taken out of your settlement spread out over time
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.
Not being an owner operator means you’re in it for the long haul. You can’t take time off without looking at your numbers. Even though the company that you will lease on to is handling a lot of the office work, it’s still a business. You also need to save money for emergencies. Many of the owner operators who say that there is no money didn’t handle their business like a business. It takes time and dedication. This job is doable and profitable, if you stick to it and work hard.