Finance vs TRAC Lease

[containerman]

I've read through some previous threads and THINK that financing will be the better option with the next truck purchase (F550 or similar). And after speaking with my CPA, the financing route seems to be his preferred method.

 

However, I wanted to get any additional opinions from owners/operators in todays current market. For established businesses what is your preferred method? Do you finance even if you are looking to buy new in 3-5 years?

 

Any input would be appreciated. Thanks.

[towman2]

We turn trucks over every 3 yrs. here, finance some and lease some. Not a financial guru so not speaking with great financial wisdom but, seems both are very similar in their payment structure, both will have early termination penalties but can be waved if you finance new equipment with same financial institute usually. Lease payment will include your state sales tax calculated on a monthly bases rather than having to pay a lump sum at purchase which will save a few thousand dollars over the course of the loan if equipment is turned over every 3 yrs. Lease payments can be wrote off as expense, however a loan payment you can write off interest and depreciation, just have to be careful not to take too much depreciation too quickly if you plan on trading in before end of loan because you will have to then pay back to IRS when you sell it (which your accountant will know). There is also a difference on the balance sheet as far as assets and this is about where knowledge gets cloudy but you do not own a leased truck so it is not an asset of the company I believe, where as a purchased truck is. To me the benefit of leasing is if you have good enough credit you can get them to set back 10-20% of the purchase price meaning at the end of the 6 yr.? lease you still owe 10-20% on the equipment which you must pay off before you own it but, what that does is lets you buy more truck for the payment you can afford or buy the truck you want for a smaller monthly payment allowing you to keep more cash in the company every month. If you are buying a heavy or something with a high price tag you are able to run the payment out a couple more yrs. if you redo the lease near the end to include that 10-20%. For us, a 6 yr. lease with a 20% buyout works great because at the 3 yr. mark we buy new. Say for example we purchase a 100k truck with 20% back we actually only make payments and pay tax on 80k for 3 yrs., at the end of the 3 yrs. the truck is usually worth just about exactly what we owe and we trade it in on a new one. We don't ever have any equity in a truck but that does not matter to us, in the end we are here to make money not own trucks. Good luck.