Financial or Operational truck leasing in the Americas
by Daniel Bland, April 2024
A heavy-duty truck could cost as much as a small apartment in some countries, so leasing is the way to go for many truckers or fleet operators in the Americas. However, there is no one size fits all so here are a few things you need to know.
Regarding leasing rates, while longer lease terms usually have lower monthly payments, short-term leases offer greater flexibility for businesses with fluctuating transportation needs.
Many leasing agreements include a maximum kilometer allowance per month or per year and exceeding this allowance typically incurs additional charges, either on a per-kilometer basis or as a lump sum fee.
Leasing rates are higher with additional services such as maintenance, repairs, and insurance or when you request trucks with specialized features like larger cargo capacities and advanced technology.
Market conditions such as supply and demand dynamics, interest rates, and economic factors can also influence leasing prices.
Financial vs Operational Leasing
In financial leasing, the lessee typically assumes ownership of the truck at the end of the lease term, either through a predetermined purchase option or by paying a residual value. As a result, the monthly lease payment for a short-term financial lease may be higher compared to operational leasing, reflecting the amortization of the truck's full purchase price over the lease term.
In operational leasing, the lessor retains ownership of the truck throughout the lease term, and the lessee returns the vehicle at the end of the lease period. This arrangement may result in lower monthly lease payments compared to financial leasing since the lessee does not bear the full cost of ownership.
However, note that operational leasing agreements may include the lessor covering maintenance, repairs, insurance, and other services and this would result in higher monthly payments, also known as full-service leasing (FSL). In a financial lease, the lessee assumes these responsibilities.
As mentioned, remember that operational leasing agreements often include restrictions on the maximum kilometer usage or usage duration to mitigate depreciation and maintenance risks for the lessor.
As for taxes, the way you treat these two leasing options may differ, thus affecting total cost of ownership (TCO).
For example, in financial leasing, the lessee may be able to claim depreciation expenses and interest deductions for tax purposes, which can reduce the after-tax cost of leasing. Your overall operational leasing payments, however, may be treated as an operating expense and thus fully deductible for tax purposes.
In the end, operational leasing offers greater flexibility all while transferring risk to the lessor which assumes ownership and residual value risks associated with the truck. This may result in slightly higher leasing prices compared to financial leasing, where the lessee bears more of the ownership and residual value risks.
What to look for
Look for trucks with advanced technologies such as telematics and state of the art GPS tracking which could save you money in the long run.
Look for trucks with fuel efficiency optimization systems to improve operational efficiency and cost-effectiveness.
Seek flexible lease terms with tailored financing options as well as transparent pricing with competitive rates.
To help with optimizing your operational costs, consider an FSL contract with bundled services like maintenance and roadside assistance.