If you're buying a tractor, you might want to consider leasing it. Today we look at eight advantages of doing a tractor lease versus financing or paying cash.
First, let's discuss how leases work. With a finance contract, you have a down payment at the beginning, then equal payments until the end of the terms and then you own the tractor. A lease starts with 1-3 payments in advance, followed by equal payments until the end of the terms, and then, if you want to keep the tractor, there's a residual you must pay off. So, a lease works opposite of a standard loan. A lot of customers, at the end of the lease, just trade the tractor back in and roll any equity they've built up in it to a lease on a new tractor.
So what are the advantages of leasing? The first one is not for the customer, but for the industry in general. Leasing tends to build up the supply of late model used inventory. A lot of people who lease will get a new tractor at the end of each lease period, and the tractor they turn in is attractive for a dealer to offer to customers who can't afford new tractors. In my opinion, this is why car dealers push leasing. If more dealers did leasing there'd be a greater selection of used tractors for those of us who don't want to pay for new.
Secondly, obviously, with leasing, you can get a new tractor every few years. If you're the type of customer who likes the latest and greatest technology, and new shiny paint, then leasing my be the way to go. You can turn the old tractor in at the end of the lease program and get a new one, many times keeping your payments the same.
Third, with a lease, you can tailor your warranty to match the lease program so every tractor you have is going to be covered for as long as you own it. If the standard manufacturer's warranty doesn't cover the lease term, have your dealer get a price on an extended warranty and roll that price into the lease payments and you'll always be covered. Peace of mind has value.
Fourth, there may be tax advantages to leasing a tractor. You can generally expense lease payments, if you're buying it outright, you'll depreciate the value. If you have all the allowable depreciation and still need some tax help, look at a lease to minimize your tax exposure
Next, leases generally don't require a big down payment. Let's say you need to keep all of your available funds to run a business, if buying, you could have to come up with 20-30% down payment. With a monthly payment lease, you generally have to have three payments in advance, quarterly, semi-annual and annual leases usually require one payment in advance. If you're trying to minimize the amount of cash you spend, consider leasing the tractor with quarterly payments.
The sixth advantage of leasing is the residual might be negotiable. If you leased now, when inventory is tight, then, when you're ready to turn the tractor back in, inventory is excessive, the lender might not want that tractor back. So, they might be willing to cut the residual to entice you to keep the tractor. There are no guarantees this will happen, but it's not out of the realm of possibilities.
The seventh advantage of leasing is that it lets you budgets for mistakes. Let's say you leased a non-cab tractor and realized later on you should have gotten a cab. At the end of the lease you can turn the non-cab tractor back in and have the dealer lease you one with a cab, with no hassle.
Finally, a lease allows you to walk away from the tractor at the end. I don't recommend this because you'll lose money, but if you don't want the stress of trying to get rid of a tractor when you no longer need it, lease it and then give it back at the end. If you go for this option, get the highest residual amount you can so you don't lose as much in equity when you return it.
It may sound like I would lease my next tractor if I were buying now, the truth is, I wouldn't. In my next video I'll give you eight reasons NOT to lease and talk about why, for me, it's not the best way toward tractor ownership.
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