Leasing Versus Buying a Semi-Truck

The truck transportation industry offers drivers a rare opportunity to make a secure living without the burden of massive student loans. In less than two months, you can earn a CDL A and start taking home a good salary.

If you’re entrepreneurial-minded, you may have already noticed that owner-operators pull down six-figure salaries, sometimes triple the income of fleet drivers, but becoming an independent trucker requires having a big rig of your own, which then begs the question: Should you lease that truck or buy it?

Table of Contents

Leasing

Freight transportation professionals who lease a semi enter into a specific contract where they pay a monthly fee to operate the commercial motor vehicle for a limited period. The company that holds the lease typically provides an opportunity to buy the big rig outright once the lease sunsets. Depending on the terms and your financial interests, extending the lease may be more advantageous. These are other pros and cons worth considering:

Pros

Leasing does not require a large, out-of-pocket initial down payment.
The monthly fee is folded into the cost of doing business.
There are fewer maintenance and upkeep responsibilities.

Cons

Leasing does not necessarily lead to ownership and business equity.
Truck leases may include mileage and other restrictions.
You won’t always be free to take every opportunity based on contractual obligations.

Purchasing

Purchasing a semi-truck is akin to the American Dream of homeownership. In terms of overall cost, buying a power unit may be your second-largest investment. Like other big-ticket items, truckers typically need a 10 to 20% down payment, and the repayment period normally runs between 2 and 7 years.

Pros

You can maximize earning potential through higher mileage.
You can deduct interest from business taxes.
You will build equity and business value.

Cons

A large down payment can drain personal finances.
You’re responsible for maintenance and upkeep.
Changing industry regulations may require a vehicle upgrade before your loan is paid off.

Factors to Consider

Job Consistency & Cash Flow

It’s important to gauge your hours of service opportunities when mulling over leasing versus buying a semi-truck. In some instances, company drivers can transition into an independent trucking role, giving them a clear understanding of routes, pickups, deliveries, and revenue. Take the time to chart out potential earnings, and use this figure as a baseline to determine whether the math works best in terms of purchasing or leasing a semi-truck.

Leasing Company Policies

Companies that lease semi-trucks use a wide variety of clauses to establish rights and responsibilities. Mileage ranks among the key policies truckers need to weigh. Most leasing agreements set a mileage threshold without adding to the monthly fee. Once this limit has been exceeded, you may be required to pay additional per-mile rates.

In terms of wear and tear, full-service leases may absolve truckers of this cost. Other types may split the difference. In some cases, the lessee takes on a duty to ensure the commercial motor vehicle undergoes routine maintenance and pays for it.

Truck Condition

Outside of collision repairs covered by insurance, full-service leases may also handle mechanical failures and normal wear and tear expenses. Late-model semis typically come with a manufacturer’s warranty, which minimizes the risk of incurring out-of-pocket expenses.

That being said, buying a big rig puts much of the responsibility squarely on the shoulders of the trucker. After warranties and extended warranties expire, owner-operators pay for repairs, maintenance, and upgrades mandated by the FMCSA and other regulatory bodies.

Your Budget

Becoming an independent trucker is the next logical step in a career in freight transportation. It offers lifestyle flexibility and the opportunity to significantly enhance your financial well-being. Consider creating a profit and loss spreadsheet to compare the costs of leasing versus buying a semi-truck, and investigate items such as the following.

Fuel Costs & Tolls
Monthly Installments
Technology Expenses
Professional Services
Permits & Licensing
Insurance Premiums
Food & Ordinary Expenses
Tire Replacements

After you’re up and running, review the business costs regularly. You’ll notice that expenses, such as insurance, remain relatively fixed. The cost of diesel, on the other hand, fluctuates. Given that fuel represents an owner-operator’s largest business expense, it’s prudent to estimate the ebb and flow of its cost.

Your OTR Experience

Truck drivers who want to work for themselves and earn more money tend to take over-the-road opportunities. Hauling goods and materials over long distances helps maximize the hours-of-service limits imposed by the FMCSA. Putting yourself in a position to become an independent OTR business owner can be challenging, especially for up-and-coming CDL holders.

Rather than struggling with lower take-home pay and waiting for years to save a 20% down payment, leasing fast-tracks your career. By leasing a semi truck, you can generate significantly more income right now. You’ll be in the driver’s seat in terms of whether to continue leasing or buy a semi truck sooner.

Tax Implications: Leasing Versus Buying a Semi-Truck

The tax implications involved in leasing versus buying a semi-truck often prove misleading. Sometimes, people operate under the misconception that deducting $10,000 in semi-truck or home loan interest on their taxes gives them a one-to-one refund. Nothing could be further from the truth.

If you pull down a six-figure salary as an independent trucker, you probably land in a tax bracket of about 22 percent. After applying the interest reduction, you might save around $2,200. While you will also be able to claim depreciation, the amount typically corresponds to the semi being worth less than its original value.

Entrepreneurs who opt to lease a big rig discover that their entire lease, maintenance, and other expenses are usually tax-deductible. Let’s say you spend $2,000 per month on a lease. Come tax day, you’d be able to reduce the business’s taxable revenue by upwards of $24,000. That helps put you in a lower tax bracket and keep more of your hard-earned income.

Get More Owner-Operator Tips From TSI

TSI works diligently with CDL professionals to support their careers and economic growth. We offer extensive hands-on training through our new driver program, provide continuing education for existing employees, and connect CDL holders with owner-operator opportunities. We encourage you to check out our blog for more insights, tips, and resources, or contact us today to learn more about our available opportunities.