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Truck finance: Leasing vs buying

If you need a new truck for your business and you’ve decided that truck finance is the way to go, you’re almost there. In this article, we’ll set out the pros and cons of each option and help you towards that final decision...

If you’ve decided that you need to buy a truck for your business, but you can’t afford to pay for it outright, or you don’t want all your cash tied up in the asset, then hire purchase could be the option for you.
This simply involves spreading the cost (plus interest over a period of time through set monthly instalments.
Key features of hire purchase:
  • Fixed monthly repayments over a set period of time
  • Truck is yours at the end of the term
  • Deposit and VAT to be paid up front
  • Responsibility of ownership is yours from day one
  • Appears on your balance sheet from the outset and tax relief may apply
Pros
The biggest draw of this option is that, whenyou reach the end of the term, you will be the proud owner of a truck and you’ll have one less bill to pay.
Because the finance is linked directly to the asset, hire purchase can be easier to access than other forms of funding and is a good option for start-up businesses.
Cons
The obvious downside is that you will end up paying more (because of the interest) than the ticket price of the truck overall. There’s also the question of how much the truck will depreciate in the time that you’re still paying for it – when you take out the finance, you’ll pay based on the brand-new value of the truck, but you’ll then continue to pay based on that value even while the truck’s real-terms value drops.
Truck leasing
Also known as equipment leasing or contract hire, this is where you essentially rent the truck for a period of time in exchange for a monthly fee.
Key features of truck leasing:
  • Paying to rent rather than own
  • Cheap monthly payments
  • Maintenance and servicing often covered by the leasing company
  • Flexible short-term contracts available
  • Ability to regularly upgrade to newer models
  • Accounted as an operating expense
Pros
Leasing is a very flexible form of truck finance. You can get contract lengths that are much shorter than hire purchase.
Another key advantage is that at the end of the term, you can give the truck back and upgrade to a newer one with a new leasing contract. This is perfect if you want to be able to have the latest models and highest specification trucks. Sometimes, maintenance and repairs can be included, which makes it much easier to budget for the costs associated with running a truck.
Cons
On the downside, the lender will have much more control over how you use the truck and you might find there are prohibitive restrictions on things like annual mileage restrictions and any changes you want to make to the branding and livery.
Also, you will never actually own the asset as you have to give the truck back.
Final thoughts
As with anything, there are pros and cons to both leasing and hire purchase when it comes to truck finance for your business. But what is a plus for some businesses, may be a negative for others. It all depends on your current situation, your business needs and your plans for the future.
Considerations include factors such as what you need the truck for, how long you need it for, how much it’s likely to depreciate in that time and whether it needs to be customised. There are also the differing tax implications to consider and it’s worth talking these through with your accountant before making any firm commitments. Conrad Ford is Founder and CEO of Funding Options, Europe’s leading online marketplace for business finance. Funding Options helps businesses find the right funding for their situation. Whether they want to grow, they’re fighting for survival, or simply need to pay a tax bill, @FundingOptions is helping the small walk tall.

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