New shiny semi-truck? Or old reliable?
Which option should you choose when you’re going to lease a truck?
When your lease has expired and it’s time for a new truck, or you’re moving from a company position to an independent contractor position, do you know which option is the best for you?
Choosing the wrong lease option for you can lead to a lot of frustration and lost money. And instead of finishing out the lease, you may decide to end it early, which can lead to penalties depending on who you lease with.
As a driver consultant here at Anderson Trucking Service (ATS) since 2015, I am often asked by drivers what the difference is between leasing newer and older trucks. I’ve helped countless drivers like you make the right selection for themselves during my time at ATS.
We’ll break down the three main considerations you must make when choosing between leasing a newer and older semi-truck, including short-term costs, warranties and long-term costs. You’ll know exactly which option is best for you.
Things To Consider When Choosing Between Leasing a New or Old Semi-Truck
When you’re making the decision between leasing a newer or older semi-truck, you need to consider the short-term costs, warranties on the truck and long-term costs.
1. Short-term Costs
When deciding between leasing newer or older equipment, you need to consider short-term costs and what kind of money you have available to spend right now. Specifically, you need to consider how much money you have available to pay for a down payment, a weekly truck payment and maintenance costs.
Most semi-truck leasing companies won’t require a down payment, but some will. If you’re considering a newer truck, you’ll likely need to provide a higher down payment. This could be a setback if you don’t have funds set aside. An older tractor with a lower down payment might be the only thing you can afford.
There can be a major trade-off between money and maintenance costs. The newer the truck, the higher the truck payments and the lower the maintenance costs. The older the truck, the lower the truck payments but the higher the possibility of high maintenance costs.
It’s as simple as that. You’ll either be spending more of your money on truck payments or on a maintenance fund set aside for potential breakdowns. It comes down to personal preference and what you want to spend your money on.
For instance, if you’re the type of driver that can’t stand the thought of being down and waiting for your truck to get fixed, you may want to choose a newer tractor to lease. You’ll be less likely to face breakdowns.
For some drivers, continued breakdowns and maintenance issues aren’t worth the hassle and stress they cause. Instead of dealing with that stress, they’d rather just try to reduce their risk of time-consuming breakdowns by making higher payments on a newer truck.
After five years, a driver with a newer truck and a driver with an older truck who both average 2,000 miles per week or 100,000 annually could make close to the same amount of money. So it really does come down to your preference.
Lease drivers that lease with a carrier are typically required to have a maintenance account set up. For every mile you run, money is set aside and funneled into your maintenance account to use for maintenance expenses. It’s typically between 10 and 18 cents per mile (CPM). The cost is dependent upon how new or old your vehicle is. An older vehicle will require a higher CPM to be funneled into your account.
If you are leasing your semi-truck with an independent leasing company, it may be your responsibility to set up your own maintenance account. Maybe that means you have an automatic money transfer set up with your bank to set aside a certain amount of money every month or week into a separate maintenance account.
To conceptualize this further, imagine that you ran 1,000 miles each week and your CPM for maintenance is set at 18 because you have an older truck. That week, $180 would be subtracted from your settlement check and funneled into your maintenance account. If your check was $1,500 that week, you will only see $1,320 of it.
If you don’t like the thought of having to funnel so much of your check into a maintenance account each week — especially if you may not use it right away — leasing a newer truck might be a better option for you. You will not have to put as much money into a maintenance account each week.
2. Warranties
Warranties should factor into your decision. When you lease your vehicle, depending on how old it is and how many miles are on it, there still may be a drivetrain warranty or a powertrain warranty on it. The length and details of the warranty are dependent upon who you’re leasing from and what warranties were purchased from the manufacturer. Unlike with a car purchase, the warranty terms are much different.
With a car warranty, you might have coverage for three years or 36,000 miles — whichever comes first. A truck driver may easily drive that many miles in a couple of months, so the warranty terms are a lot longer.
The warranty on a semi-truck may be five years and 500,000 miles or one year and 100,000 miles. It all depends on the age of the vehicle and who you’re leasing with.
A drivetrain warranty typically covers the transmission, driveshaft, axle shafts and wheels. It does not usually cover the engine.
A powertrain warranty covers everything that relates to powering your vehicle’s wheels. The powertrain warranty includes the engine, transmission and driveshaft.
A newer leased semi-truck will typically still be under warranty. An older truck may not be under warranty anymore or it may be close to reaching the end of its terms.
You can purchase additional warranty coverage, but you have to ensure you select a reputable company. Your leasing company may offer a lease protection program for the duration of your lease.
Hint: if you are receiving repeated calls with an automated voice loudly proclaiming, “Your vehicle’s extended warranty is about to expire!” it’s not a legitimate company. It’s shady. Run away.
If you’d like a truck with a warranty still on it, you’d be better off leasing a newer truck or recognizing the fact that you’ll need to pay additional money for an extended warranty. Sometimes the company you lease from offers a bumper-to-bumper warranty for a short period of time.
3. Long-term Costs
If you plan on eventually completing the lease and owning the truck, consider the value of the asset if you purchase it at the end of the lease. How much money do you want to spend on the truck years down the road?
Let’s consider a scenario in which you lease to purchase a newer semi-truck versus an older semi-truck.
If you lease to purchase a brand-new truck, it takes five years to pay off and you have 500,000 miles on it, your truck likely has a lot of miles left to go without it needing major (costly) maintenance.
If you lease to purchase an older truck that already had 400,000 miles on it when you leased it, and now that you’ve purchased it and driven it for five years, it has 900,000 miles on it, the value of the asset will be significantly lower than a newer truck. It won’t be worth as much and it will be close to needing a major (costly) rebuild.
At a million miles, semi-trucks typically need a major overhaul. This isn’t just regular maintenance, like replacing the battery and changing the oil and spark plugs. It consists of rebuilding the engine and replacing parts like the turbos, alternator and starter.
If you’ve purchased that newer truck and you’re only at 500,000 miles, you may have another 500,000 miles before you’ll have to do an overhaul. That could give you about five years to set money aside in preparation. The value of your asset will also be higher than an older truck.
On the other hand, if you’ve leased then purchased an older vehicle and it now has 900,000 miles on it, you could be about a year away from a complete rebuild of your engine. Do you have that money set aside?
If you haven’t been saving up and funneling money into your maintenance account, this can be problematic for you. Repairs on semi-trucks are nothing to sneeze at — sometimes costing drivers upwards of $40,000 that they didn’t account for.
When making your decision, you’ll also need to think about the balloon payment. It’s the final payment you’ll need to make before you receive the title to the truck.
For example, if you leased a truck with a value of $100,000 and the amount paid toward the principal after your lease term is up is $80,000, you will have to pay the remaining $20,000 on the initial asset cost in order to own the title. The $20,000 is a balloon payment.
You will need to make that payment or the truck goes back to the carrier or leasing company. Some drivers choose to finance the balloon payment through a bank. Ask yourself if the truck is worth $20,000 and if you can justify its purchase. You’ll also need to ask yourself if you can afford the cost of the balloon payment.
Your balloon payment will largely depend on the age of your truck. A newer, more expensive truck will likely have a high balloon payment at the end of the lease, whereas an older truck will have a lower balloon payment.
So, you might be left with a newer and more valuable truck, but you’ll have a high balloon payment to secure the asset. If you don’t plan to save a lot of money for a high balloon payment at the end of the lease, you may instead want to start by leasing an older tractor with a lower balloon payment.
How Do I Choose Between a Newer or Older Semi-Truck?
Ultimately, the pros and cons of leasing a newer versus an older truck outweigh each other. Your choice really comes down to your preference.
Are you the driver that wants to roll up to the truck stop in a brand-new rig? Or do you prefer a trusty steed?
If you get a new truck, you’ll likely have fewer breakdowns, which leads to less downtime and the potential for a higher earning potential. You may also prefer the safety features on newer trucks, like collision mitigation. When the lease ends, if you decide to purchase the truck, you’ll have a higher balloon payment to make. You will spend most of your money on truck payments and the balloon payment to own the truck.
If you lease an older truck, you’ll be saving money on a truck payment every week. Insurance costs may be lower as well. Most of your money both in the short-term and long-term will likely be spent on maintenance costs.
Would you rather spend your money on a truck payment or maintenance?
You must also consider the company you plan on leasing with. What kind of equipment do they have to offer? You may find a trucking company that has a great lease program, but they don’t have the equipment you want. Vice versa, you may find a leasing company with the newest equipment but not a great program.
The company you plan to lease with should weigh heavily in your decision between leasing newer or older equipment; make sure that they not only offer the equipment you want but that they’re a good company.
Finding the Best Company to Lease With
Leasing a newer truck versus an older truck ultimately comes down to your preference — the costs outweigh one another.
Consider how much money you’d like to spend on weekly truck payments versus how much money you’d like to spend on maintenance costs. Think about if you want to purchase the truck after your lease is up and whether you can afford a high balloon payment with a newer truck.
You should also consider if you are okay with dealing with the stress and cost of being broken down more frequently with an older truck versus a newer truck.
Remember, before you sign any lease, you should read the terms of the contract closely. Know what you’re signing and make an informed decision. Talk to your driver recruiter and the leasing company to have a strong understanding of what you can expect from the lease contract and program.
After all, the leasing company’s reputation and equipment offerings should weigh heavily in your decision.
At ATS, we understand that it’s not only difficult to decide whether you should lease a newer or older truck, but it can be difficult to decide which company is the best one to sign a lease with.
That’s why we’ve put together a list of the best trucking companies to lease with. This list will help you make an informed decision about which company best aligns with your goals and expectations for a truck lease.