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Commercial Truck Leasing: What Fleet Managers Should Know

Learn what leasing is, how it works, and what to consider before signing a lease agreement.

July 2012, Work Truck - Feature

by Staff

Vehicle leasing offers several benefits to fleets, but it’s not a one-size-fits-all financing product. There are myriad options to choose from when structuring a commercial truck lease that directly impacts cash flow, taxes, and vehicle replacement cycles, which can make the lease evaluation process daunting for even seasoned fleet managers.

Fleets can preserve cash to reinvest in the business, enhance debt-to-equity ratios with “off-balance sheet” financing, or structure payments and terms to fit cash flow and tax objectives.

The key to making sense of vehicle leasing is to understand the basics: What is leasing? How does it work? What should fleet managers consider before signing a lease agreement? 

Lease vs. Loan

One way to understand “leasing” is to compare it with a conventional bank loan. For example, take a vehicle with a purchase price of $30,000. Here’s what the numbers could look like for a loan. 

■ Total truck price, including any dealer and miscellaneous fees: $30,000.

■ Sales tax at 6 percent (or local sales tax rate, if differs): $1,800.

■ Assume $0 down payment. (In many cases, bank loans will require minimum 10-percent cash up front.)

■ Loan balance (plus tag and title fees): $31,800.

This $31,800 balance would then be divided into monthly payments over a term of three to six years, with interest charges applied to each payment.

How does leasing differ? Both bank loans and leases are forms of financing, but the difference lies in what they finance. Whereas a bank loan finances the purchase of the vehicle, a lease finances the use (or depreciation) of the vehicle, defined by the spread between the purchase price (capitalized cost), without sales tax included, and the residual (projected vehicle disposal) value at lease end. 

So, here’s what the numbers could look like when leasing the same truck at the same price:

■ Total truck price, including any dealer and miscellaneous fees: $30,000. (With leases, this is called the capitalized or cap cost.)

■ Depending on state laws, the sales tax on leases is added to the monthly payment, not the total capitalized cost. 

■ Assume $0 cash out of pocket (or cap cost reduction).

■ Adjusted cap cost: $30,000 (Since there is no cap cost reduction in this example.)

■ Assume the residual (projected vehicle disposal) value at lease end is $12,000.

■ Subtract the residual from the adjusted cap cost, and the total lease balance is $18,000. 

(Note: A lease may also include a refundable security deposit, a non-refundable acquisition fee [see sidebar for definition] and other miscellaneous fees, which are not reflected in the example above.) 

The bank loan balance is $31,800 to purchase the vehicle, while the lease balance is $18,000 to use the vehicle. That difference of $13,800 has a substantial impact on monthly payments — and thus, cash flow. Depending on the length of the term and interest rates, the monthly lease payment for the above example can be $200-$300 less than a comparable term loan.

Another difference is what happens at the end of the term. When you make the last loan payment, you own the vehicle outright. With leasing, however, you have a number of scenarios to consider at end of term, based on the type of lease and how it’s structured. 


  1. 1. Ronald [ February 08, 2013 @ 05:08PM ]

    Good article

  2. 2. Hollands Forestry Consult [ March 13, 2014 @ 07:51PM ]

    Agreed, informative article

  3. 3. Christopher Stewart [ April 17, 2015 @ 10:29PM ]

    I need a commercial title vehicle loan against my tow truck

  4. 4. William C. Watsson [ March 22, 2016 @ 11:44AM ]

    Article is Informitive to me! Keep up the Good work!!!

  5. 5. ADAM FRED LOAN FIRM [ August 20, 2016 @ 05:07PM ]

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