Overdrive Magazine | Trucking Business News & Owner Operator Info
Issue link: http://read.dmtmag.com/i/709236
32 | Overdrive | August 2016 TO LEASE OR PURCHASE? Amen, president of business services provider ATBS. A "driver that has little money down, poor credit, etc., will likely do a lease where the finance company holds the title to the truck," Amen says. "There are many reasons for this, but one of the most significant is that these are higher turnover/repo programs." If the driver can't keep up with payments, "the finance company can repo and reseat the asset much faster and cleaner if they are the title holder." The terminal rental adjustment clause (TRAC) lease, the basic form of the lease-purchase, allows shared responsibil- ity between the lessee and lessor. It gives the owner-operator the right of own- ership at the lease's end while reducing cash outlays over that term. The operator can choose to pay the residual, or balloon, at the term's end or opt to take whatever equity he or she may have – if the truck is worth more than the residual amount owed – and move into a different truck, using the eq- uity as a down payment. Secured directly with a dealer's finance department, a TRAC lease generally will be available only to those with better credit than is required of a traditional loan in today's HOW TO WEIGH THE CHOICES Things have been going well for owner-operator John Doe. His primary customer, a small manufacturer, has offered him greater load frequency with their freight on both ends. But taking advantage of the opportunity will require another dependable truck. Doe's contemplating a new equipment purchase but is hesitant to deplete his emer- gency business reserve, given the age of his single truck. Working with a dealer as well as an affiliated leasing company, the three options here present themselves. While the purchase loan seems simple enough, the TRAC lease offers cash flow advantages. The almost $400 lower monthly payments, if saved, would be enough to pay off the balloon at the lease's end to assume full ownership. Financing that amount is another option. Doe's fairly confident his customer will keep him in freight beyond the end of the five-year terms of these deals. But given at least some uncertainty, the full-service lease and the support for the truck/replacement units is also attractive. Monthly cash outlays, however, are barely any better than the 60-month traditional truck note – and he wouldn't retain ownership at the lease's end. What would you do? If you were in Doe's shoes, what considerations would hold most weight for you? Call 530-408-6423 to weigh in on our podcast voicemail line. With any message, be sure to state your name and base location. Alternately, write tdills@randall - reilly.com. We'll follow up with your choices. In years 2002 to 2005, owner-oper- ators buying stock trucks were a much larger percent of our sales mix than today. — Troy Dickens, manager of Rush Truck Centers' Nashville, Tenn., location, on the effects the rise in equipment costs and other market dynamics have had on owner-operator purchasing