Should I Lease-to-Own a Semi Truck?

April 13, 2018

It seems that lease to own semi truck tends to get a bad wrap, whether it's for a dump truck, a house, or even a big screen TV. "It's set up for you to fail," says one driver posting in the Trucker's Report. "You'll make more money as a company driver rather than a lease operator." Another decries, "it's a one-sided deal in the company's favor. Why put money into a truck that isn't yours?"

Warnings like these are plastered across forums, where experienced drivers bemoan everything from the limited potential for earning while under a lease, to the sketchy practices of companies who never let their drivers have full ownership of their rig, to the limited (or absent) equity of the truck once you're done with your contract.

While some of this is true, there are legitimate lease-to-own programs for commercial trucks that won't decimate your bank account or your peace of mind. In many cases, drivers don't fail because the lease-to-purchase program is faulty - they fail because they, themselves, are misinformed as business owners.

If you're prepared to pay for maintenance, have a realistic perspective on the financial responsibilities (and pitfalls) of being a new owner operator, and have the self-control to keep tight reins on your cash flow, a lease-to-own contract may be a viable path to truck ownership.

Leasing, Purchasing, and Everything in Between First, if you're just beginning to explore becoming an independent owner operator, there are three main ways to obtain a commercial vehicle that you'll need to know about: you can lease from a third party, lease to own, or purchase a truck by yourself.

Here's a snapshot of leasing and purchasing, before we get into detail about how the lease-to-own option compares:

Leasing. To lease a truck through a third-party provider, you'll have to put some money down (similar to the security deposit you pay on an apartment or rental house). Depending on lessor, you may also need to have good credit to get approved - or pay more upfront if you have bad credit.

Multiple owner operators in the Trucker's Report forum discuss how they found local truck owners to rent a commercial vehicle from. One driver's wife talks about finding a truck in town with a "For Sale" sign, and approaching the owner about renting it instead of purchasing it from him. "The guy needed to get rid of it due to a divorce, and said 'yes,'" she recalls, "They both went to the bank where the [owner] had it financed, and the bank drew up a third-party contract. For $700 a month, he would take over the payments."

  • Pros: When you're starting out as a business owner, this option is handy because it affords you the flexibility to learn the ropes, without the responsibility of full truck ownership - or the risk of a lease-to-own program. At the end of the lease term, you get your deposit back, and some leases may even have a purchase option at this point.
  • Cons: You'll need decent credit, unless you can find an individual or company that's willing to compromise with you. You will also have limited control over the rig, including where and how you do business. Further, if there isn't a purchase option at the end of the lease, you won't be any closer to owning your own truck.

Purchasing. When you purchase a truck, you can either work with a bank to finance it, or buy the truck outright. Financing is the common choice, especially for new owner operators, who are unlikely to have the capital upfront to purchase a brand new rig. When buying, the biggest decision is whether to purchase new or used.

New trucks are favorable if you're still getting up to speed on truck maintenance, since you won't have to contend with as much in terms of faulty parts or repairs. With new technology, new trucks tend to get better mileage and offer other amenities you won't find in older models. However, a used truck can be an extremely economical option for the savvy buyer. By inspecting service records, the vehicle itself, and a seller's motives, you can score a used vehicle for a fraction of the price of a new one.

  • Pros: When you purchase, you're the truck owner from the get-go. You can drive however you want, with your new spouse or pitbull puppy at your side. Also, though it's more costly in the beginning, you can save in the thousands over time.
  • Cons: You need at least a down payment and good credit to qualify for financing. Ongoing maintenance and repairs are your full responsibility, as well, and if you change your mind about your business you'll have to sell it or continue making payments.

Now that we've briefed you on leasing from a third party versus purchasing, let's take a look at the middle road: entering into a lease-to-own agreement. Here's the lowdown on what lease-to-own is all about, and some key considerations when entering into this type of arrangement.

Commercial Truck Lease-to-Own Programs

Lease-to-own is exactly what it sounds like. You'll pay a monthly fee to whoever owns the truck you drive, and part of that fee will go toward its purchase price.

At the end of the lease term there's a final balloon payment, sometimes $10,000 or more, that you'll have to pay before the truck is yours. These programs serve as a way for truckers with subpar credit to work toward ownership, with little or no money down. They also cater to owner operators who are tired of leasing through a company and want to make a steady transition into running their own business.

One word of warning

Lease to own programs often draw another type of driver, the ones who are allured by the notion of being an owner operator, but don't have the industry experience or business acumen to obtain their own truck and clients yet. If you fall more in the latter group, you may be far more successful over time if you gain experience driving for a company than leaping headfirst into ownership through a lease-to-own program.

  • Pros: It won't matter as much if you have bad credit when leasing to own, because some companies or individuals won't run a credit report. In addition, you don't usually need much (if any) money upfront to begin a lease-to-own program.
  • Cons: You may have to pay a hefty fee at the end of your lease to secure your ownership, and your monthly rental fee can sometimes be higher than traditional financing or renting. Finally, some companies that offer these programs do, indeed, set their drivers up to fail, so you'll have to be extra diligent in your research before signing a contract.

When you're a company driver, some companies may offer their own truckers a lease-to-own agreement. However, experts warn against leasing-to-own for the same company you haul for. The reason? Some companies will dramatically reduce their drivers' miles at the end of one of these contracts, limiting the amount of money they can make. This leads to missed payments, broken contracts, and nothing to show for it.

Good to Know Before Signing

With all of this negative buzz around lease-to-own programs, it may seem unbelievable that anyone would opt for something so risky. However, not all of these programs are created equal, and it only takes a bit of research to determine if you're signing with a reputable company or truck owner. Here's how to sort the respectable setups from the scams.

Learn as much as you can about the truck. An Overdrive Online article by Randy Grider emphasizes the importance of learning about your truck before getting into a lease-to-purchase arrangement. "Not only will this give you insight into the equipment itself, but also the lease-purchase program," Grider writes. For starters, check out mileage, and maintenance and repair records. Find out from the owner how many times the truck has been leased. If it's more than one or two times, be wary - this could indicate some underlying issue with the truck, or a loophole in the lease-purchase program that inhibits drivers from successfully transitioning to ownership.

Next, if you're participating in a lease-to-own with a company you're working for, examine the business's financial health. The worst outcome for you, the hopeful future owner operator, would be for the company to fold - leaving you no legal ownership over the truck you've been leasing. If the business is publicly traded, you can find stats about financial health online. Otherwise, ask the company directly about its economic outlook.

If you're unsure about a particular program, there's no harm in calling other carriers to learn more about their programs. Comparing the rates, lease length, and financial health of several different companies will help you make an informed choice and guard against any potentially catastrophic outcomes.

When you're meeting with the owner, dig into the lease-to-own contract. Will there be a balloon payment you have to make by a certain date, in order to have full ownership? Because these can be in the tens of thousands of dollars, you'll have to set aside some of your earnings monthly to prepare for it - or else your lease-to-own program will fail at the very end. What is the penalty for a late payment? Are there any escrow accounts, and if so, will you get the balances back after the lease is up?

Finally, if your contract is especially long or laced with legal jargon, it may not hurt to hire a lawyer to review it with you.

Lease-to-Own Success

According to a 2011 survey conducted by Truth About Trucking, 77 percent of drivers fail to complete their lease-to-own programs. One of the top reasons cited is a lack of preparation for the challenges of the owner-operator business, including repairs, which is extremely likely to happen over the course of a lease to own truck program.

But you're smarter than this, of course. You've chosen what seems to be a reputable company, you've picked a truck in great working condition, and now you're on the path to ownership. Some drivers may make the mistake of simply hitting the road and hoping the money will roll in, but that's rarely the case. Now, the subsequent success, or struggle, of your burgeoning business is up to you. Here's how to get the most out of your lease-purchase program.

Maintain the value of your truck by driving responsibly, and taking care of it. Remember, this truck will (hopefully) be yours at the end of your contract - so now's the time to make sure you're taking the best care of it you possibly can. One of the best ways to do this is to drive slowly and carefully, according to Ed Godfrey at the Big Road blog. "On average, you'll want to drive between 57 and 60 miles per hour [and] conserve your brakes in favor of using your engine brake," Godfrey writes. Driving at a pace that won't stress your equipment is essential for building equity on your lease-to-own vehicle. In addition, "regular oil changes and grease jobs are the cheapest mechanics you can hire," Godfrey adds.

Learn everything you can about maintenance. Even if you aren't the one doing the labor, you should be aware of everything your mechanic does to your truck. It's an unfortunate reality, but the only way to be certain that a mechanic is ethical and honest is to verify with your own eyes what they're replacing or fixing - and why. Godfrey suggests keeping records of everything done to your truck, so that if something goes wrong and you're under warranty, you can have the problem corrected.

Leasing to own isn't always the minefield the community makes it out to be. Like with any important decision in your owner-operator journey, if you take a focused approach to decision making, you're likely to make the right choice for you and your business.

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