Is Lease Purchase Trucking a Good Idea? We hear a lot about leasing programs and trucking. In this podcast episode, we’ll finally find out if leasing a truck is a good idea for you. I’ll give you several tips on what to look for and what to look out for with leasing a truck.
Hello, I’m Andrew Winkler, and this is Driven Too Far: The Truth About Trucking. A podcast that helps over-the-road truck drivers balance careers and families.
Lease purchase programs. Are they a good idea? You know, in our company, it’s probably the hottest topic when you think about recruiting drivers, and maybe 4 to 1 for every phone call or message that comes into the company, it’s somebody asking about our truck lease program.
What do you get? How does it work? And one of the things that we typically see on the message boards when they come in is, can I get a breakdown, please?
Well, we’d love to share some information with you, but what is it you want to break down? So there have to be some conversations.
But I think to kick it off, let’s talk a little bit about the differences between the two most common truck lease programs.
Truck Lease Operator
The first one is a lease operator, and this is essentially a driver that’s probably going to lease a new or newer truck from the carrier directly.
It means the carriers take care of all the finance. You’re essentially renting the truck for a period of time. And there’s nothing wrong with doing that.
It’s simply part of the business plan that you’ve come up with. Let’s recap. Lease operators = newer trucks.
The advantage of lease operators is the truck is probably still under factory warranty or it should be. So that gives you the lease operator peace of mind, right? You’re leasing something new. It’s something that you probably could not have gone out and got on your own. I know this last group of semi-trucks that we spec’d were $200,000 a truck; they keep climbing in price and they’re going to get worse next year.
Is lease purchase trucking a good idea? Keep reading and learn how the average guy can afford a truck!
How Does The Average Guy Lease a $200,000 Truck?
How does the average truck driver that’s a company guy step up into a $200,000 piece of equipment? Does he have the credit? Does he have the down payment, the background, and everything that goes into it? In most cases, the answer is no, he doesn’t.
When we talk and think about lease programs, they absolutely have a purpose in our trucking industry. And it’s a stepping stone for you. You’re a company driver and the dream has always been to own your own truck.
That’s almost every driver I talked to, those words come out of their mouth. They want to run their own business. They want to be their own boss. But there’s a huge gap between where you’re at now and where you need to be. How are you going to get there? That’s where the lease truck programs really come in from the carriers.
Yes, some of these lease truck programs get a negative rap but those programs are not driver friendly. And in my personal opinion, they do take advantage of the driver. But I’m here to tell you there are some good ones out there. You just have to know what to look for.
As we mentioned previously, the lease operator program is the new truck. It may be a short-term lease like 12 months. It probably has a walk-away clause in it. And the understanding that you’re not building any equity in that truck, you’re simply renting the truck for a certain period of time. So that’s the lease operator. This is often referred to as a walk-away truck lease program.
Are lease-purchase trucking programs a good idea? Let’s dive in further and learn the difference between a lease operator and a lease purchase.
Lease Operator vs. Lease Purchase
The other term you’ll often hear quite a bit is the lease purchase.
But what’s the difference between a lease operator and a lease purchase? So at least in our company, the lease purchase is typically a used truck. It might be a three or four-year-old truck that came out of the fleet. It may be up to a point where we are getting ready to trade it out of the fleet, but it still obviously it has a lot of good life in it. The driver steps in. He wants to do a lease purchase typically takes 36 to 48 months. We set up the payment form. The difference is they are going to own the truck at the end of that contract term. So within 3 to 4 years, they’re going to own the truck title in hand, and then they can kind of do what they want with it.
If the truck has treated them well, hasn’t had a lot of maintenance issues with it, and still has a lot of life left in it. They may choose to continue to run that truck with no payment.
Think about what that scenario would do for your business and your bottom line. You’ve got a revenue-generating asset that’s paid for, so that’s a good scenario.
The other thing they might choose to do is once they get the title in hand, maybe that truck is still worth $20,000-$30,000. Now you’ve got some equity in a truck, you’ve got a revenue-generating asset! You can go trade it for that next truck, that newer truck, maybe that dream truck, whatever it is.
It doesn’t matter whether you’re a lease operator or going with the lease purchase plan. Please understand these programs do have value in the trucking industry. They are a stepping stone to help you become a small business operator.
Now, let’s learn the pros and cons of Lease Purchase Trucking programs.
Pros And Cons of Lease Programs
Let’s talk just a little bit about the pros of the lease programs. First of all, most of them are set up. So there is little or no down payment at all. So they’re very easy to get into. A lot of carriers don’t run or require any kind of credit check. So that’s an advantage to drivers. Maybe if your credit score is not where you want it to be. This is a great way to get into your own truck and not have the bank digging into your background.
The lease payments on the trucks are set up so they’re manageable. Each fleet kind of knows what kind of payments an owner-operator can handle and still make a good living.
When I talk to potential candidates about our lease programs, I tell them if they do the business right and you follow some of the things we’re going to help them with, they should be able to make 10 to 30% more in income than you do as a company driver.
That’s the goal when you talk to drivers about why they want to get into it. It’s one or two reasons it’s to make more money. And aren’t we all like that? And the second is to become their own businessman or independent contractor. So these programs certainly help with that.
If you bring an outside truck onto a carrier and you lease that truck on to that carrier and you’re running under their authority, you still have to provide maintenance records for all the work you do on the truck when that’s annual quarterly inspections type thing, any kind of service work that’s done, that carrier that has the operating authority, they need to have a record to make sure that you’re doing all the maintenance required on that truck to make sure it’s safe on the road.
One of the advantages, again, to the lease operator or even the lease purchase program is that truck you picked out came out of that fleet. They’ve had it since it’s brand new and they’ve got all the maintenance records already and you should be able to just plug into their maintenance system and continue to do that.
The other advantage is when you think about maintenance on the trucks there’s probably a really good chance that the carrier is going to give you a discounted rate on labor rates in the shop.
If you continue to do the work there, you’re also going to have access to discounted parts, tires, the things like that. And most of the carriers I know actually, set you up an in-house maintenance account.
If you were to take your truck to an outside dealer and have worked on it at Peterbilt or Freightliner, whoever that is, they’re going to expect payment before they give you your truck back. Right? Well, by having an in-house account set up with your carrier, in many cases, at least with our company, you know, if you have a big expense as an owner-operator and it’s a lot, we’re going to work with you to figure out a payment plan to get those expenses covered.
It’s another advantage when you go through a lease program, through a carrier, it’s no secret there are some red flags out there when you talk to other drivers.
I know on the first driver orientation for me, I usually sit down and talk with our new drivers and we talk, first off about safety to kind of set the tone and the standard of what we expect from them with the safety stuff. Our company has developed a strong reputation for having a culture of safety.
Are you ready for a lease purchase trucking program?
Not Ready For Lease Purchase
Remember when I mentioned some lease purchase programs get a bad rap? Where does that come from? There are carriers out there that take advantage of people that had no business owning a truck yet. They haven’t been in the industry long enough yet and they didn’t take the time to educate them.
In our company, one of the things we do is an education process. And I’m going to test you a little bit. I want to make sure that you’re all in on this and that you’re making the right move for you.
We’ll assign you some online training that you have to do before you come to orientation. That’s the first big test is to see that you did the online training you were supposed to do.
If you walk in on the day of orientation and you didn’t get it completed, I’m not so sure how serious you are about being a businessman.
The next thing is I do about a half a day workshop with all our drivers and we just talk about things that are going to come up as you go down this road and this new adventure for you, first-time business owner. And I’m really trying to change your mindset. Going from a company employee to an independent contractor, things change and you have to think about things differently. All of a sudden you’re paying for the fuel.
When you have downtime between loads, that’s on you. There’s no extra pay for that. You have to have a plan for health insurance for you and the family because you’re no longer a company employee, you’re a contractor and you have to provide that.
We cannot as a company provide you with those types of benefits. One of the biggest red flags that I’ve seen over the years and heard about and I’ve actually seen some from drivers sharing settlements with me from a previous employer, a previous carrier is the number of chargebacks.
When you look at a settlement for your carrier, it should be very clean, transparent, and easy to understand. If you get to the last page of your settlement every week and it lists all these chargebacks that the carrier is charging you back for this mobile comp system and so many maintenance Miles and this and that. And then you look at the bottom line and it’s not anywhere close to what you thought it would be. That’s a red flag. My advice? Go talk to some drivers.
If you’re considering a truck lease program, maybe talk to some of their owners and lease guys that are currently there or previously there and ask about the chargebacks, or are they transparent?
Do they treat you fair or is it just there’s so much information, it’s so confusing that it’s really hard to understand that that’s definitely a red flag? Take the time to read through the contract. Any carrier that tries to rush you through the process gets you to sign on the dotted line and doesn’t give you time to read through the contract or answer your questions about the contract.
If there’s a Big Red flag step aside and don’t do it. I have no problem giving our potential or new contractors a copy of the contract. I encourage them to look it over overnight, take a couple of days, whatever it takes. Have your wife or your spouse look through it with you to see if they notice anything. These are legal contracts. There are some big words in there, right? There’s some lawyer talk in there that can be a little confusing, but there’s nothing wrong with making some highlights in that contract or some question marks on things you don’t understand.
I advise you to get the clarity that you need before you sign anything. There are some legal words and phrases in there that probably have to be put in there, but nothing in there should scare you, and it shouldn’t have a lot of lingo in there about fines and penalties and all those kinds of things. If it feels like Carrier wants to fine you or penalize you for every little thing that may go wrong, that’s a red flag.
Are you familiar with Baloon Payments? Keep reading and learn the one question you have to ask about a Lease Purchase Trucking program.
Let’s talk a little bit about balloon payments. This is something that always comes up and I think when drivers inquire about our lease programs or any lease programs, they’ve been conditioned to ask about, well, does it have a balloon payment? Well, yeah, most of them do.
And let me tell you where that comes from. I think it’s just the lack of understanding. If you were to go lease a new pickup today, they would set up your payments for 36 or 48 months or whatever that looks like.
And at the end of that truck lease agreement, that vehicle is still going to be worth a residual value. That residual value is, in essence, the balloon payment that is due.
At the end of that lease, you have probably two options. You can give the vehicle back and walk away from it. Or you could write a check for that balloon or residual value on the vehicle, then it’s yours.
- Give vehicle back
- Walk away from it
I think some drivers get caught up in the idea of a balloon payment and it’s a negative thing. It’s not necessarily a negative thing.
It’s a very natural thing in the process where I think truck drivers have a misunderstanding or the questions they probably need to ask the carrier is, “if I get to the end of this contract and there is a residual or a balloon payment on the vehicle. Will you help me finance that?” That’s the difference maker to me.
In our case, we will certainly do that. We’ll turn around and make you a loan for the residual. So you take that lease operator program and you essentially turn it into a lease purchase program in the end so you could physically own that truck at the end of the agreement.
We’re different at our company. I think a lot of the carriers, don’t offer to finance the balloon payment at the end. And that’s what rubs drivers wrong.
They think, oh, it’s just a scam and it’s set up that way. Well, you’re kind of right. The expectation is that you will give the truck back at the end of the three-year, four-year term, whatever it is, can’t make the balloon payment. And then they’re going to try to sign you up again for that next lease.
The One Question To Ask About Financing
Please understand what a balloon payment actually is. And one of the questions you should ask a recruiter is, will you help me finance the balloon at the end of the contract? One of the key things with a good truck lease program is you’ve got to know if that carrier is going to stand behind you or not.
We hate to think about catastrophic type failures with the vehicle, but they certainly can happen. So a lease operator, hopefully, that vehicle is under warranty.
But let’s talk a little bit for a minute about how warranties work. Typically, when the vehicle is brand new, it has a bumper-to-bumper, maybe 100,000-mile warranty.
In our case, we purchase extended warranties for four years/500,000 miles. We’re covering the major components like the engine, the transmission, the rear ends, and the def system. We know that’s a critical problem with these trucks. We do that. We produce or purchase the extra warranty things.
The thing you need to ask the carrier and think about is what happens when you do have a critical failure. Are they going to be there to support you through that? Let’s say you’ve got a transmission that goes out, the truck is out of warranty. It’s going to be on your dime. That’s a lot of money. It could be $5,000-$10,000. Who knows what that could be? An engine is 30,000 to have something rebuilt. How in the world are you going to pay for that?
Most contractors I know don’t have that much money set aside. So the real question becomes, and you should ask the recruiter this What happens if I have a failure and are you going to stand behind me? In our case, we do. I just always tell the drivers that, listen, we’re going to work this out because if I don’t stand behind you in the truck and we don’t figure out a payment plan or something like that to get you back on the road, you’re essentially going to walk and I’m going to end up with a broken truck. That doesn’t do either one of us any good. That’s our philosophy in standing behind the drivers and the lease programs that we build.
Thanks for joining me here today for the Driven to Far trucking podcast. Subscribe now so you don’t miss any of the trucking industry secrets that you need to know as a driver. We’ll see you next Time for more truth about trucking.
Chief Carriers is a Best Fleets To Drive For in America company dedicated to safety and committed to their professional drivers. This article was taken from the transcripts of the Driven Too Far podcast. To listen to the podcast, click here.